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Tariffs and Rising Gold Prices: A Retailer Strategy To Stay Profitable | September 24, 2019 (1 comment)
Carlsbad, CA—The concern with tariffs and rising gold prices has elevated to a reality for the jewelry industry. No doubt you are seeing cost increases—ranging from small to substantial—on items coming into your stores.
With only an occasional setback, gold is climbing at a steady pace and many manufacturers are beginning to price their goods at $1600 gold. If gold continues to escalate at its current rate, manufacturers will be forced to mark goods even higher during the fourth quarter or by the beginning of next year, while the 10% tariff on an additional $300 billion worth of Chinese imports earlier this month was the latest move in an escalating trade war that certainly impacts our industry. (Editor's note: spot gold hit a two-week high of $1524 an ounce on Monday following weak economic data from the Eurozone, particularly Germany.)
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So, what’s a retailer to do? Read on for a valuable game plan.
As we enter the fourth quarter with volatile contributors to Cost of Sales, retailers need to consider two primary issues. First:
- Has your cost of goods already increased on items that are in your store today? In other words, if you sell that item today, will it cost you more to replenish it?
- What has each vendor told you about their future costs to you? With respect to both tariffs and gold prices, what should you expect from your vendors now and/or in January?
Then, after researching the above topics specifically with each of your vendors, we suggest you take the following actions now:
- Take a markup now on proven fast sellers, “never outs,” and merchandise that you consistently order, based on the new replenishment prices.
- For merchandise you have had for a while, are hoping to sell off this fall, and are not interested in replenishing, leave it marked as is.
But keep competitive price points in mind! For example, on a basic, shoppable piece that’s currently marked at $999 to be competitive in your market, shop the competition often before losing that price point. As a rule, you would be better off to maintain your price point and take a shorter margin, thus turning the piece multiple times, as opposed to pricing yourself outside the market.
Packaging and other incurred increases. No doubt you have probably seen an increase in the prices on your packaging, depending on where it comes from. We have seen price increases by as much as 25% due to the tariffs. If these increases are being directly passed on to you, you should consider your future relationship with this manufacturer. It’s probably too late to make any changes for the fourth quarter, but keep this in mind as you stock boxes and bags for Christmas. Consider that you may want to re-source these items after the first of the year, so don’t over-stock yourself.
Should you roll these increases into your retail pricing now? Yes, but on a small scale. Look at taking markups where they make sense, in areas where you can pick up a few extra dollars; don’t simply take a markup across the board. This could be an opportunity for you to roll some items into important price points. For example, if you had an item at $749, now would be the time to take it to $799; but if you had an item at $999, you should not necessarily bring it to $1299.
Repricing your merchandise where appropriate is a task you should undertake now. Speak with each vendor and make individual determinations. You should not be taking a blanket percentage markup (although this is the easiest way for your merchandiser to receive goods); items need to be priced independently, at price points, based on their salability.
Protect your margins. The objective here is clear: you are protecting your ability to replenish your bestselling goods in January. Consider your true restocking price and use that information now to make the appropriate adjustments.
There are many other variables that can potentially play into this scenario long term, but for the upcoming quarter, you should take these actions now. Come January, all indicators point to higher prices due to gold, tariffs, or both. After the new year, you can take a fresh look at the terrain you will be navigating for 2020. But for now, let’s focus on a strong fourth quarter and enjoy the increased sales of a strong economy.
Dan and Lori Askew of Vantage Group provide decades of expertise to both retailers and manufacturers in the jewelry industry. They strategically examine each area of business and address concerns in the order that will make the greatest impact in the most time efficient way, specifically with cash flow, merchandise planning, inventory control, advertising, and store management. www.VantageGroupinfo.com or 760-633-2959.