February 2008
Extra
Distributors Brace for Inflation
In November, inflation was at its highest level in two years, according to a Labor Department report. The Consumer Price Index soared 0.8%. This was the largest jump since fall 2005. Consumer prices overall grew 3.2%, the steepest increase in 34 years.
Gasoline prices, meanwhile, shot up 9.3% during the month and overall energy costs grew 5.7%. For many distributors rising costs are just table stakes in the game of business. Lou Baldo, owner of Special T Unlimited (asi/331333), says, “It doesn’t make a difference. UPS went up 4% a year for the last 20 years. No one talks about that. We’ve lived through it before the last couple of years, with gasoline and electric prices.”
Still, cutting a few corners to save doesn’t hurt, says Jill Mitchell, owner of Express Yourself (asi/190996). For example, if a customer is local, she will deliver the products herself instead of paying for shipping. “I’m still paying for gas, but it is a lot less than the shipping costs.”
Mitchell has also cut printing costs out of her budget. She opts for e-mail blasts rather than direct mail, and has scrapped creating a catalog altogether. “You still have to spend money to make money,” she says, “but I’ve just been trying to spend a little less.”
When it comes to end-users who may be shying away from placing an order because of rising costs and pinched marketing budgets, Karen Scherer, owner of A Flamingo Glass & Engraving Co. (asi/101733), tells customers, “More marketing is better than less marketing. If the economy is tough, you need to stand out, spend your money wisely and get more bang for your buck.” It’s often not that difficult a sale, Scherer says, “because most people in America know every year everything goes up in cost.”
Baldo says that overall, raising prices can be a good thing, because the margins go up as well. “If the prices are going up, then the margins get better, because you better be adding your raw costs into it,” he says. “Think about it: Your overhead is fixed. So if you are marking up a product 30%, you are making more profit on a shirt that cost you $1.10 versus $1. Going up isn’t going to hurt you…inflation isn’t even in my thinking.”
Mitchell concedes that she is concerned about how increasing costs will affect her business, but she hasn’t gone so far yet as to change her business approach. “Inflation is a little bit of a concern,” she says. “Yeah, I am a little nervous, sure, but I am not doing anything different than what I have always done.”
KEN HEIN is a contributing writer based in NJ.
