Rising Prices Boost Companies’ Bottom Lines
Retailers and Manufacturers Respond to Inflation
Rising costs for labor, fuel, and materials are not stopping many of the nation’s corporations from seeing strong profits. Everyone from retailers to manufacturers are raising prices, which is more than making up for increased costs.
As it stands, close to two-thirds of large public companies in the US have posted better margins than in 2019 prior to the pandemic. Close to 100 of these companies’ profit margins are 50% higher than they were in 2019.
Demand is strong, and for the most part people are willing to pay higher prices. Consumers in the US are paying more for food, gas, furniture, rent, entertainment, and other goods and services. The Consumer Price Index increased by 6.2% year-over-year in October—the most significant jump seen in over three decades.
Manufacturers Keep Hiking Prices
With inflation rising across the board, companies are increasing the prices they charge consumers. Mattress company Sleep Number (SNBR) already raised its prices three times in 2021. The same goes for heating and cooling products maker Carrier (CARR). This has helped companies boost their profit margins in spite of inflation.
Meanwhile, for Tapestry (TPR), which makes designer handbags and clothes, profit margins are 14.5% so far this year compared to 10.7% in 2019. That is even with Tapestry paying more for air freight to get enough inventory for the holidays. The company said it is reducing the amount of discounts it offers, which has been helpful for increasing profits.
Are Consumers Getting Fed Up?
Companies across industries have seen strong demand recently. Without that demand, companies would not be able to raise their prices at the pace they have in 2021.
Consumers have been willing to absorb higher prices so far, but hiking prices too much could backfire for companies. If retailers and manufacturers raise prices too fast or if they do so more than competitors, it could prompt consumers to go elsewhere or to rein in their buying. After all, consumer confidence hit a 10-year low in November and the blame fell squarely on inflation. Retailers will need to keep this in mind as they navigate the holiday shopping season.
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