Retailer Backlash over Prices

The tension is mounting between suppliers and retailers. People are spending less, yet retailers are forced to raise prices to compensate for the lost profit of the suppliers. One great recent example is the price of milk - suppliers lost an average of .05 a gallon last month to stop the rapidly increasing price per gallon that had been passed on to consumers. Now, however, suppliers are in jeopardy, and the situation has become enough a problem to gain attention by state legislators and regulatory agencies, which is garnering backlash from grocers' associations:

"What's next? Are we going to do apples? Are we going to bread? Where do you draw the line?" he said. "This is America. This is not some dictatorship from Montpelier that says we know how to run private business and we know what's best for you and your customers." (see article here)

Here is another example from the Wall Street Journal:

" A big grocery chain has removed from its Belgian stores about 300 Unilever products that it says are priced too high, a sign of mounting tension between retailers and suppliers as the recession grinds on.

"The move by Brussels-based Delhaize SA, which operates the Food Lion chain and other grocery stores in the U.S., comes just days after Unilever reported strong fourth-quarter profit that was driven in large part by its ability to command big price increases despite the ailing economy. (Big Grocer Pulls Unilever Items Over Pricing)"

The problem has become so bad that grocery stores are even being downgraded by investors, which no doubt does nothing but exacerbate the issue. On an interesting counterpoint: one retailer is going against the flow and refusing to change its prices.

"Sales down by 19 per cent but Abercrombie & Fitch eschews inelegant option of cutting prices to suit its cloth

Abercrombie & Fitch appeared to have it all – a glossy catalogue filled with beautiful young men and women, glamorously photographed by Bruce Weber; gorgeous assistants in carefully lit stores that seem more like nightclubs than retail outlets; and fashionable garments emblazoned with the A&F logo, appealing to the upwardly mobile youth of America.

But when the economic downturn caused shoppers to think twice about their spending, A&F refused to reduce its prices – as much as £60 for a polo shirt – in an attempt to protect the brand.

Its reluctance to wield the red sticker has seen bargain-hunting shoppers desert in significant numbers, allowing rivals such as American Eagle and Aéropostale to steal market share with their cheaper products. Yesterday, A&F reported a 19 per cent decline in sales across its chains for the three months to January 31 to $998 million (£688 million), with like-for-like sales at A&F-branded stores down 25 per cent. Net profit also fell sharply to $68.4 million, down from $216.8 million a year earlier.

Mike Jeffries, chairman and chief executive, said: "The fourth quarter proved to be a catastrophe for the retail industry – a nightmare that included unprecedented promotional activity by other retailers in the malls and consumers who continued to show reluctance to spend, especially for premium brands."

However, he claimed that the company was "satisfied" with its results for the quarter, adding: "We will . . . continue to protect and position our brands for more promising times."

Read the full article: "Abercrombie & Fitch refuses to reduce prices". How long can this possibly last? We will see if their customer base is as loyal as they think they are, or if they can continue to pay premium prices for their teens' new clothes. If they do succeed, it will be an interesting case study for retailers examining their pricing strategy. More soon! Warmly, EM