TBO.com - TBO is Tampa Bay Online

Decking The Halls To Be More Costly

ADVERTISEMENT

By ANNE D'INNOCENZIO

The Associated Press

Published: July 31, 2008

Christmas in July? Maybe not a bad idea this year.

Retailers are already talking about price increases of up to 15 percent this year on holiday goods, from staples like tree ornaments and toys to luxury gifts like European handbags and clothing. The main cause? It's the same old chestnut, soaring energy prices.

While most consumers are just starting to think about back-to-school shopping, retailers are already preparing for the critical holiday season. Consumers have been seeing prices creep up for many products, but now escalating cost pressures - which are also being fueled by the weaker dollar and higher labor costs in China - are forcing merchants from low-price warehouse clubs to upscale clothiers to pass on more of the burden in the months ahead.

Many stores are still deciding on their holiday prices, and receding oil prices in recent weeks could provide a bit of relief. Still, buying that status handbag now might help shoppers save a little - but for some items, it's already too late.

And any big surge in demand could lead to more bad news on the inflation front, serving as a catalyst for prices to spiral.

With bigger price increases, the nation's merchants risk turning off shoppers who may end up buying fewer holiday gifts to keep to their budgets. That could mean a serious hit for the economy, since consumer spending accounts for two-thirds of all economic activity and the holiday period accounts for a huge chunk of merchants' sales and profits.

"Truthfully, I probably won't purchase items that go up that much - especially something like Christmas decorations," said Marilyn Reese of Cincinnati, who works at an insurance company. "I will just go with what I have."

Carl Steidtmann, chief economist at Deloitte Research, says that price inflation will be yet "another factor that undermines consumer purchasing power and will hurt spending even more."

"This will be a very difficult holiday season," he said.

At The Same Time, Stores Have Discounts

The price increases come as stores also have to be pushing even deeper discounts this holiday season to attract customers. But that 50 percent off may not be as good a deal as last year since the original price could be higher.

Even Costco Wholesale Corp., which had been one of the bright spots in retailing, warned last week that its profit was getting squeezed by rising energy costs and it would have to raise prices more. Richard Galanti, Costco's chief financial officer, specifically cited holiday decor and rotisserie chickens, which are popular for holiday meals.

Holiday decor will be as much as 12 percent pricier this holiday season than a year ago, and the price of rotisserie chicken, which had been $4.99 for years, was raised to $5.49 about three months ago and just went up to $5.99 last week.

Toy prices are likely to be about 10 percent higher for the holidays than a year ago, said Sean McGowan, an analyst at Needham and Co.

K-B Toys Inc., which focuses on selling past toy hits at discounted prices, says it isn't increasing prices for now. The chain even unveiled a program Monday that offers temporary price cuts on some already reduced toys. But the discounts are a result of logistical maneuvering. Advertising director Geoffrey Webb said the chain has started consolidating trips from the distribution centers to stores to save fuel costs.

Expect Prices To Rise In The Fall

Kathleen Waugh, a spokeswoman for Toys "R" Us, said prices for some products will stay steady, while others will have "gradual" increases beginning in early fall. Waugh declined to comment further because pricing is still being worked out. But at Kidstop Toys and Books in Scottsdale, Ariz., which offers mostly European brands as Haba and Corolle, 10 percent price increases have already begun, according to owner Kate Tanner.

European luxury goods are also getting even pricier as the dollar erodes against the euro. New York-based luxury consultant Robert Burke estimates that the price tag on European status handbags, shoes and clothing will rise as much as 15 percent starting this fall.

"No one expected the weak dollar to last this long or get weaker," Burke said.

Sandy Neiman, director of marketing for clothier Paul Stuart Inc., whose tailored men's suits are priced from $1,700 to $5,000, expects up to a 10 percent increase on European clothing starting in September. While he believes that his wealthiest clientele won't "blink an eye," others may switch to less expensive labels.

Profit Outlook Bleak

Prices for mass-market apparel, which have fallen for decades because of oversupply and cheap labor from China, are also seeing prices rise a bit because of higher wages from that country, and that's forcing stores to shift production to other low-cost countries such as Vietnam. Quentin Crenshaw, a spokesman at J.C. Penney, which sources in 17 different countries, said that the department store chain doesn't expect to increase overall prices for the holidays.

Officials at Wal-Mart Stores Inc., Sears Holding Corp., and Target Corp. declined to comment, but a clearer picture on inflation is expected after they report their second-quarter results in August.

The profit outlook isn't pretty. Retailers have been forced to absorb costs at the expense of profits but can't do it any longer, since the holiday period accounts for about 40 percent of merchants' profits and 50 percent of sales, says Ken Perkins, president of research company RetailMetrics LLC.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT