As rising costs threaten profit margins, retailers are forced to consider raising prices.
Higher raw material prices and global supply chain disruptions have raised the prices of various goods.
Retailers have passed on or intend to pass these price hikes to protect their margins amid higher COVID-related costs.
However, if the price rises are too fast or too far, they could threaten the profitability of the retailers.
It is a balancing act that many retailers have to perform as they try to maintain their profitability while also protecting their margins.
Wesfarmers, which owns a number of retailers, believes that inflation can help increase its market share.
However, appliance distributor Breville has raised prices by less than 10 percent in the last six months to recover rising costs.
Breville said that the company is facing less cost pressure than other consumer products businesses due to its small size and innovative approach.
Despite this, Breville noted that the price elasticity of demand can still cause some retailers to raise their prices.
Retailers can raise prices if they see fit, but they should also consider the impact of the increase on their customers.
Nick Scali, a furniture chain, reported that its average transaction values have increased by about 5 percent due to the pass-through of higher supplier prices.
While prices for consumer electronics have been relatively stable, The Good Guys chain, which sells kitchen appliances, is planning to raise prices by around 8 to 10 percent in the current quarter.
The Good Guys said that the company’s goal is to make sure that the prices they charge are still affordable for consumers.
The rise in consumer spending due to the pandemic has been a big boost to the industry.
After cashing in more than $240 billion, Australian households are starting to look at ways to spend their money. However, they may still be reluctant to splash their money on new furniture.
Despite the potential increase in EBIT margins, sales growth will still allow retailers to maintain their profitability.
Richard Shellbach, a strategy analyst at UBS, said that companies have been able to maintain their margins despite the increasing costs.
Promotions have been cut back due to the lack of stock, but will most likely return once supplies are back to normal.
If promotional activity continues to fail to boost sales, margins will eventually come under pressure in the June half.
Stores like Catch have seen big rises in invetory costs from it’s suppliers however you can still save on your purchase from Catch with a Catch voucher.