The Rising Cost of the Shirt on Your Back: When Commodity Spikes Impact Consumer Prices

Ever since starting Spend Matters, I've always thought there was an interesting intersection worth exploring between the business-to-business and business-to-consumer elements of procurement and supply chain. Yet at the same time, I have found it difficult -- except in commodity areas where pricing is transparent for at least some items that consumers end up paying for directly (e.g., gasoline) -- to explain the exact link in simple terms to end customers. Yet a new linkage between B2B and B2C where consumers will end up paying more thanks to price increases and potential capacity constrained markets literally will impact the shirt on your back, or at least the cost of it. Thanks to higher prices and supply reductions for cotton, CNN notes, "stores could have you paying more for your favorite clothing" as early as January, owning to a doubling of cotton prices in 2010 in part because "major Asian cotton producers" have "choked off global supply."

What led to the supply shortage? CNN suggests a domino effect as the culprit, starting with a drought in China, floods in Pakistan and recent Indian trade restrictions designed to "protect domestic supplies and prices." The cascading effect could lead to a price increase for t-shirts of 20%, according to one source quoted in the article. And it could also lead to material substitution as well, as textile suppliers and garment producers look to offer alternative fabrics incorporating preppy-handbook horror-of-horrors "poly-cotton" blends into broader clothing lines.

For the average consumer, the case of rising cotton prices and potential supply shortages is not as transparent as paying two bucks more per gallon for gasoline. After all, we buy clothing less often than we fill up at the pump. Yet it does highlight to a typical household the types of volatility that companies face on a quarterly basis in terms of managing many commodity buys. And from a B2B perspective, I also believe that cotton price spikes will portend greater volatility in other commodity areas as well, as the weather patterns that in part impacted the crop are likely to drive volatility elsewhere. Maybe we should all take a few bucks out of our savings accounts and start stacking up fifty pound bags of sugar, wheat and rice in the closest (incidentally, a couple of years back, I remember when warehouse stores starting limiting the sale of rice based on just such behavior).

Jason Busch

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