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.

Making a Holiday Budget… with Wiggle Room

The most important thing to do, if you haven’t already, is to make a budget that includes holiday spending. The tricky part is being analytical about your expenditures and making a realistic budget, so that you can hopefully avoid holiday debt.

Don’t pick your numbers out of thin air. Consider what events you’ll be attending, who you want to purchase gifts for, and if you’ll exchange presents with your coworkers. And remember, it’s also the season of charitable donations.

Being realistic in the early stages of planning is a great way to make sure that you don’t end up paying off the holiday debt months from now.

When you’re creating a spending game plan for the holidays, it’s essential to allow for some wiggle room in your budget. Otherwise, you could end up going over. Small expenditures like picking up wine for a party or buying a last-minute stocking stuffer for your friend’s new baby can add up. Consider baking some extra cash into your holiday spending budget if you can to keep a good buffer.

You may think you’ll lose ground on working toward your financial goals during the holidays, but did you know the SoFi Credit Card is actually designed to help you achieve them while still enjoying the season? And we’re shaking things up even more by giving away $1,000,000 worth of reward points* to make life for our members a little bit easier. Apply now!

Airbnb Looks Ahead

Airbnb Has Benefited From Remote Work

Airbnb’s (ABNB) business has been booming recently. Due to many consumers’ ability to work remotely, travelers are seeking out longer stays in roomy homes rather than small hotel rooms. But Airbnb’s dominance may not continue as many workers return to the office, which could help Expedia (EXPE) and other traditional online travel companies.

During the third quarter, Airbnb’s gross booking values were up 23% and its revenue soared 36%. This marked the company’s best quarter on record. Meanwhile, Expedia’s revenue was 12% lower than it was during the same period in 2019, but Expedia did say it is seeing higher demand for rentals through Vrbo, the home-rental program which it owns.

Hotels Are Making a Comeback

The pandemic changed the way millions of people traveled, altering where they chose to go and how long they chose to stay. But some pre-pandemic trends are beginning to return.

The lodging industry has been improving since the second quarter of 2020, when revenue for many hotel operators hit their lowest levels. Marriott International's (MAR) revenue was 72% lower at that time,but sales were only down 25% in Q3 of 2021 compared to the same period in 2019.

Meanwhile, sales at Wyndham Hotels & Resorts (WH) were 17% lower in the third quarter when compared to 2019. Occupancy levels for the week ended November 6 were down 13%—a marked improvement from a year ago.

How the Return to the Office Will Impact Travel Trends

Another factor which may help traditional hotels and could hurt Airbnb is the fact that many people are returning to the office after nearly two years of working remotely and traveling for longer periods of time. Additionally, schools are back in session and families are not booking long vacations the way some did when school was online.

The pandemic upended traditional patterns in the hospitality and travel industries. Now, some travelers are reverting to their former habits. Hotel operators and homeshare platforms will need to stay nimble as they respond to changing trends.

Discount Retailers Can’t Escape Inflation

Rising Costs May Eat Away at Profits for Walmart and Target

Retailers Walmart (WMT) and Target (TGT) have seen early holiday sales surge as consumers begin to stock up on presents. But unlike some of their high-end retail competitors and manufacturers, the discount store operators may not see the same uptick in profits. Higher costs for wages, warehousing, and shipping could put a dent in the holiday shopping season, reducing Walmart and Target’s profit margins.

This is something investors will hear more about with Walmart’s earning report this morning and Target’s tomorrow. Wall Street expects operating expenses to increase about 10% for Target and close to 4% for Walmart.

Amazon Already Set the Stage

Rising costs should not come as too much of a surprise for Wall Street, given that Amazon (AMZN) set the stage when it reported quarterly earnings in late October. The ecommerce giant forecast costs to be about $4 billion in the holiday quarter. Those costs will take a significant chunk out of its profits.

Retailers are facing skyrocketing costs, particularly for warehousing. Costs for warehousing are projected to increase between 18% and 19% in 2021. Meanwhile, rent expenses at Walmart are expected to hit $3.28 billion this year—up 7% year-over-year. Costs for insurance, freight, logistics, and wages are also rising at record rates and pressuring profit margins.

Walmart Should Still Be a Winner

Although Walmart and Target may not make as much profit as they hoped during the holiday season, they will still benefit. They will likely have an easier time than smaller rivals which don’t have as much control over the supply chain.

Walmart, and to a lesser extent Target, have a bigger and more efficient supply chain which will help ensure that they have enough holiday goods this season. That will alleviate some of the pressures from rising costs. After all, consumers in the US are still expected to spend $859 billion on holiday gifts this season, which is up 10.5% from last year.