ASK THE EXPERT | HOW FAST ARE PRICES ABOUT TO RISE?

Question – Given the conflict in Iran, how soon can we expect prices to rise, and how can we plan for these increases?

A: Our clients are already being warned about possible fuel surcharges on incoming deliveries. This isn’t surprising given that fuel makes up 50% to 60% of shipping costs.

In some cases, they plan to split these surcharges with the vendor; in other cases, they will pay for it themselves, with plans to pass it on to the consumer.

In many ways, it reminds me of the Covid era when retailers and vendors had to work together to come up with a deal that would keep business moving.

Now is a good time to take a close look at your planned Initial Markups (IMUs). Are they high enough to offset new shipping charges? If not, will increasing prices push some items into a new price range? If so, you may get some resistance from customers who are comfortable in their current ranges (say $1200 -$1500 for a suit, versus $2000 to $2500 for a suit.)

The good news is that we haven’t seen any pushback to higher prices so far. As we move into fall, and some apparel inputs are affected, as well as fuel charges, we could see higher spikes.

There’s a lot we don’t know right now. But what we do know is that even if the conflict de-escalates and the Strait of Hormuz is completely reopened, it will take months for oil and other goods to start flowing at the rate they used to.

In retail, there are always unknowns, so we go back to our tried-and-true playbook. Do you have good vendor relationships? Do you have the flexibility to source from other locations if costs are too high? Are you landing goods close to when you sell them, so you have a better idea of exactly what your costs are?

I know some of these are difficult questions if we are working in the luxury market and have to buy goods far in advance. But having open communication with your vendors and regular check-ins can help reduce uncertainties.