It’s stating the obvious by now that continuing issues in the global supply chain have caused major disruptions for home furnishings manufacturers. Materials, freight costs, and container availability have led to increased, unprecedented costs, while inflation concerns ebb and flow as we work through each day of returning to “normal.”
The extent of these surges has left most manufacturers trying to forecast when, not if, wholesale and retail price increases are needed to offset the cost and maintain the health of their business. Some have already put price increases into place, but many are also hesitant to raise prices for fear of suppressing the great demand that the industry is experiencing.
For manufacturers feeling the squeeze to maintain margin, here are 6 key considerations when it comes to increasing your product prices.
1. Understand the short- and long-term impact on your business.
It’s important to look at it through a right-now lens as well as a down-the-road lens.
If your business can absorb some of the increased costs in the current environment, you may be able to wait it out without a price increase. At the same time, forecast what might change when supply issues normalize. You may be able to consider an adjustment temporary and plan to eliminate it when the environment has improved.
But, if it’s threatening your margin—now or in the near future—don’t let excitement about the demand hold you back from protecting the long-term health of your business.
2. Understand retailers’ rules.
As you probably know, pushing a price increase through to your retail partners isn’t typically a simple process. But all retailers approach these differently, and it’s important to understand the ins and outs and manage expectations accordingly.
For example, many retailers have specific processes in place for submitting an increase. Some also have a minimum timeline, so it can be 60+ days for a price increase to be fully implemented.
Your retail partners will want to do their due diligence to forecast how a price increase might impact their sales. They need to maintain a healthy margin as well and want to make sure IMAP is rising at the same rate (which it should be).
If you can communicate which products aren’t changing in price (or even decreasing), that helps buyers see the mix and variation among percentage changes and parse out what product types will be impacted by the change.
3. Avoid a blanket increase across all SKUs.
Of course, it would be easiest to average out the impact of your business’ supply costs overall and apply that as a flat percent increase across all products.
But from a strategic standpoint, pinpointing the exact places an increase is needed to offset costs will help minimize interference with sales.
If freight costs are impacting every product in your catalog, there may be an across-the-board increase to account for those. But for materials, take the time to understand what materials are required for what products, how those costs are rising, and apply those increases accordingly.
4. Revisit your promotional calendar.
In 2020 and into 2021, some manufacturers dialed back promotions, either because the demand was so high that they didn’t feel the need to sell products at a discount or because inventory issues left them with few products to actually promote.
With inflation concerns and likely price increases across the board, consumers might be looking for those deals in the second half of the year. But even if they’re willing to pay full price as demand remains strong, canceling promotions also decreases the visibility of products in the short and long term.
Especially as we march toward Q4, be flexible in your planning and willing to take another look at promotional events you have lined up for the rest of the year.
5. Try to limit to one price increase versus multiple.
What’s harder than a price increase? Many price increases.
Do the work to determine upfront how much prices need to rise, so you aren’t submitting one increase after another to retailers. Not only is a price increase a significant move across the board, sending out multiple won’t be received well by your retail partners, and it will make for volatile forecasting.
This does require some hedging on what increases will stick around and what won’t. Going back to #1, think about both the now and the later to find the right balance.
6. Timing and communication should be planned thoughtfully.
Remember, every retail partner treats a price increase differently. Be upfront and transparent about why the increase is needed and give retailers a reasonable time period to implement it.
Even given the understanding of the current environment, buyers may want to have a conversation about the proposed increases and game-plan on how to ensure minimal disruption to sales. Remember that retailers are your partners in success. Be prepared to openly communicate with them for a successful rollout.
Price adjustments can be tricky to navigate and even more so in this unpredictable environment. Manufacturers who maintain this thoughtful approach to increases will not only be set up for success in the coming months but will also help preserve strong partnerships with retailers as the industry—and the world—finds its new normal.
