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Price Increases For 2011

June 15, 2010
It’s that time of year when manufacturers are ginning up their new products, fabrics, and programs for next season. They are also getting those pesky price lists ready for next season. After a calamitous 2009 and a dismal 2010, you would think price increases would be out of the question for 2011. Well, you’d better think again. Several manufacturers have talked to me about the need for price increases in 2011.

 

Everyone has good reasons for this, of course. The first is that the cost of materials are going up. According to the web site scrapmetalpricesandauctions.com, steel prices have increased by 50% since January. Aluminum has increased from about $1,700 per metric ton in August of last year to almost $2,000 per metric ton this month. The price actually reached over $2,400 per metric ton in April. I guess if all other costs remained constant, just the increase in materials would justify some sort of price increase.

 

However, the same source says, “…many European independent experts believe that as early as in late June, flat steel prices in the region will start down. Taking into account that steel output in the EU in the first four months of 2010 was up 44% over the same period last year, the  market is under the threat of overproduction.” For outdoor furniture manufacturers who have to put their 2011 price list to bed in the next 30 days, this seesawing of raw material cost must be keeping them up at nights. It would me!

 

The next reason for a price increase has to do with the price of labor in China. A June 7, 2010 article in The New York Times says labor prices have risen dramatically in China in the past few months. Foxconn Technology, one of the world’s largest contract electronic manufacturers, employs 400,000. Because workers would rather to return to their farms than work for wages of $125/month, Foxconn reports a 5% per month turn over. That amounts to over 20,000 people leaving every month. To stem the tide, Foxconn is in the process of doubling the wages they pay.

 

In addition, the Chinese government is backing wage increases to spur domestic consumption. They want China to become less dependent on producing low-priced goods for export. They also want export-oriented companies to invest in higher-value goods. Read this as higher end outdoor swivel rockers, chaises, etc. It seems higher Chinese labor costs are here to stay, unlike volatile material costs.

 

The Chinese government is also under a lot of international pressure to allow its currency value to float rather than remain fixed against the dollar. If and when that happens, the cost of everything exported out of China will climb whether wages or material costs go up.

 

Finally, sea freight costs have gone up substantially during the past year. When demand dropped so drastically last year, the demand for freighters fell, too. Unused freighters were put into mothballs similar to the way U. S. airlines took equipment off of routes when capacity got so much higher than demand. And, just like the airline industry, freight companies are not adding back ships even though demand has gone up this year. The increase in demand hasn’t been enough to justify put additional equipment back into service. I guess this will fix itself eventually. I just don’t know if that will happen before manufacturers who import components have to make decisions about their prices?

 

Here’s the bottom line. Business has stunk for two years. Everyone has pinned his or her hopes on 2011. If manufacturers are being squeezed to raise their prices anywhere from 6% to 8% for 2011, we might be pinning our hopes on the wrong year.

 

Yours in confused retailing, Bruce