Psst! Have I Got A Deal For You!

January 23, 2009

Come with me as I take you back to the days of yesteryear. It is July, 2008. A barrel of oil is selling for almost $150. Because of this, almost everything that goes into making, packaging, or shipping an outdoor chair is more expensive. Aluminum, steel, plastic, cardboard, freight, nothing is sacrosanct. As a result, premarket is awash with price increases ranging from zip to as much as 17%.

Fast forward a little bit to the September Market. The economy is “iffy” and industry pendants predict premarket price increases can’t last long. Some scoff, but, lo and behold, there are a few deals to be had at market. Some vendors are will let retailers use the preincrease price lists if the orders are in by the end of the September. Others were offering additional discounts or dating. Mind you, there wasn’t a lot of this but just enough to get a sense that trouble was in the air.

Back to today. Gosh, I thought those were pretty good deals. I never imagined they would get better. But listen to some of the deals that have come across my desk in the past few weeks. One manufacturer offered me a 3% discount on ALL ORDERS (custom or stock) from now till Spring if I would floor one set of a new group they are introducing. Another company has gone back to their 2008 pricing, which is the equivalent of lowering their prices by over 15%. Just yesterday, another rep called to say his company has created a program that offers, “Unprecedented factory authorized savings.” All I need to do is agree to advertise the savings and I can take an additional 10% off of my in-season prices. More importantly for this company, they will allow me to advertise pricing lower than their usual MAP. (I hear the thumps of MAP price lists hitting the bottom of trash cans across the country!)

In the “good old days” these deals would have knocked my socks off. Now, they worry me because another word for these deals is “deflation.” You know, “deflation” the opposite of “inflation.” Instead of prices going up, in deflationary times they start coming down. Now I hear you saying, “Why should that worry you, Bruce? When prices go down, we will all have more money to spend on other things. That’s a good thing, isn’t it?”

Well, if gas were getting cheaper because the oil companies dropped their prices out of the goodness of their hearts, it would be a Martha Stewart kind of moment.  However, the price of oil came down because demand started to fall. In the face of lower demand, the speculation bubble burst and prices dropped even further. So much for the “oil companies are my friend" theory. While some people used less gas out of a spirit to help the environment, others were more pragmatic. They had lost their jobs and weren’t commuting anymore. Demand for fuel from factories started to drop, too. Not because they were going “green” but because they were seeing less demand for their products and had to run at lower capacity.

It is not just gas that is getting cheaper, either. Department store prices for Christmas were as much as 70% below MSRP. Even though Christmas is over, prices on clothing is still low. Automobiles are selling below cost and not by just a few percentage points but by as much as 15 – 20%. Sweaters aren’t cheaper because Macy’s had a “Scrooge like epiphany.” And Chevys are cheaper because GM wants to be your BFF. (BFF is preteen texting speak for "Best Friends Forever.")  Nope, the simple fact is demand for everything is dropping.

As demand falls, manufacturers don’t need to produce as much and they start to cut costs (read: able bodied workers). Unemployed workers spend less and lower demand. Worse, people who still have jobs hear about growing unemployment, become uncertain about their future, and start spending less. It is a vicious circle that drives demand lower and lower.

So, when a manufacturer offers me a chair for 10%, 15% or 20% less than it cost last year, it may be a good deal but I am not impressed. However, if a vendor offered me an “increase confidence by 50%” SKU, I would be buying that by the truckload. . . even if no one offered me a “good deal” on it.

Yours in confused retailing, Bruce

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