It’s not just about food and oil anymore.
Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs.
â€œItâ€™s a little terrifying to deal with cotton suppliers now,â€ said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients.
â€œAmerican consumers better get used to rising prices on the shelves of Wal-Mart and other retailers,â€ said Jessica Lo, Shanghai-based managing director at China Market Research Group. â€œChinaâ€™s manufacturers are getting squeezed not only by rising cotton costs but also soaring real estate and labor costs.â€
â€œWe can give clients a price now, but it will only be valid for a week,â€ said Tianlongâ€™s Hu.
â€œIf cotton goes up 50% or 70%, or wherever it lands, there will be an impact on pricing that everybody in our industry is going to feel, but our objective is to have a competitive advantage, particularly on key price points the customer would expect us to maintain,â€ he said.
Unless we start to see some actual price stabilization – not the kind the Fed tries to induce via excessive money printing – prices in ALL essential goods are going up. The fact that many Chinese firms are quoting prices that expire after a week suggests that what we’ve gained from quantitative easing the world over is not price stabilization, but exactly the opposite.
We have yet to see the recent rise in commodity futures prices for essential goods reflected at our local retailers and grocers. But it’s coming. And, unless something changes (like a major collapse in commodity prices), the average American struggling to put food on the table better brace themselves.
For now, retailers have been keeping prices down in an effort to entice consumers and remain competitive. This has been collapsing their margins and subsequently affecting their earnings. By Spring of next year, retailers will no longer be able to sustain without raising their prices – so don’t be surprised when they do.