Off the Cuff: How to Manage Price Increases

With price hikes already occurring at the wholesale level, price hikes on decorated goods are inevitable. Here's what you can expect in the weeks ahead and how you can raise prices without squeezing your margins.
April 29, 2008

By Mark L. Venit, MBA

Price increases from the industry's wholesalers are in effect, including the tallest hikes in quite a while on basics. Some apparel decorators are grumbling, while others see it as an opportunity to add a few points to their own margins. And those in-between just grin and bear it.

The grumblers say it'll cost them business, while acknowledging that the increases in basic garments are overdue and a fact of life — especially at this time, when the cost of staples from fuel and transportation to cotton and grains, among other things, has risen dramatically.

Compounding the situation are increased global competition, a weakened U.S. Dollar, ongoing political uncertainties in the Middle East and Latin America, and turmoil in the housing and credit markets in the United States.

The U.S. economy has indeed taken a hit, though Wall Street pundits now generally concur the economy should rebound in the latter half of the year. Fortunately for us, the second quarter, the industry's strongest in unit volume, is well underway, and custom decorators can enjoy the resumption of hearing their machinery singing again.

Swelling Labor Costs
Then, again, labor costs are rising as well. The Federal minimum wage, at $5.15/hour for nearly nine years, rose last summer to $5.85. Effective this summer (on July 24), it escalates to $6.55 and again next summer to $7.25. But two-thirds of our states already mandate even higher minimum wage rates than $5.85. The higher levels tend to be on the West Coast and the Northeast, though some Midwest states, such as Illinois (July 1, 2008 – $7.75; 2009 – $8.00; 2010 – $8.25) and even job-challenged Michigan at $7.40 are moving into the upper range as well.

Minimum wage figures at a glance:
•    District of Columbia – $7.55
•    Massachusetts – $8.00
•    Oregon – $7.95
•    California – $8.00
•    Washington – $8.07 (the nation's highest minimum)

Most states also mandate overtime at time-and-a-half, though definitions of when overtime begins vary somewhat.

As a general rule, most apparel decorating companies pay varying amounts above state minimum wages for entry-level workers, usually $0.50 to $1.00 above state-mandated minimums. But as these mandated minimums rise, companies' general pay scales escalate as well. What all this means is that at a buck an hour or more between now and next summer, the privilege of employing folks will climb upwards of $2,300 per worker per year (including employer-paid taxes, excluding benefits). Any way you figure it, the expanded wages will compel most industry firms to charge more for their craftsmanship.

Inevitable Price Hikes
Though many owners fear increasing prices may cost them some customers or volume, the fact of the matter is that — given the amplified costs for both garments AND labor — virtually everyone will have to raise prices. The only questions are how much and when.

And, of course, other costs will likely continue to rise as well — fuel, transportation, food, and in many states, taxes on employees, employers and businesses.

As a result, I anticipate prices to end users on sales of custom decorated apparel will increase 5% to10% within the next 90 to120 days, based primarily on increases on garments and excluding the impact of other cost increases. After the minimum wage hike of 12% (over 2007) goes into effect this summer, I'd expect to see garment decorators tack on another 5% to 10% to end-user prices before year-end and perhaps more if key operating costs rise along with it.

Those who don't opt to raise prices will:
a)    be depleting huge pre-price hike inventories (not likely at all),
b)    be trimming staff and achieving concomitant and dramatic increases in worker productivity (even less likely) or
c)    be of a mindset then justifies doing work without making any money.

The last group might be surprisingly large in our trade, but the marketplace has a way of squeezing them out of existence for obvious reasons.

Effective Cost Controls
Before raising your prices, do look into buying more efficient equipment (while interest rates are still low), do invest in additional training of employees if you think it'll yield measurable economies, and do tighten your belt where feasible and practical.

But when you've explored and exhausted realistic alternatives to increasing your fees, doing the inevitable should be effected sooner rather than later. Your good customers will understand. Your good prospective customers will likely understand as well, though some will shop you to death. The buyers who buy on price alone may very well seek and find the price increase holdouts, but most veterans know these buyers usually aren't worth the grief or minimal profits they represent.

Despite the challenge of managing price increases, there's something good, though, that most astute businesspeople look forward to: the extra margins and actual dollars you realize from doing what's necessary. Smart salespeople will likely echo the sentiments of industry pros who know their products and services are worthwhile in the eyes of their customers and prospects; they understand the need for upping prices when necessary and take it in stride.

As Joe O'Fria, a top sales performer at my former company and now owner of Pennsylvania Promotions in suburban Philadelphia, taught his colleagues years ago and his own salespeople today about price increases: "Great! Hey, we all just got a raise!"

Mark L. Venit, MBA, is president of Apparel Graphics Institute Ltd., Ocean Pines, Md., which provides management and marketing consulting and proprietary research to apparel graphics companies throughout the Americas and Europe. He is also the chairman of ShopWorks Software LLC, a provider of industry-specific business software. Venit teaches pricing, strategic marketing, salesmanship and other business management topics at the Imprinted Sportswear Shows. He will be teaching a new all-day workshop, "Getting to the Next Level: Surviving and Thriving in Good Times and Bad," at the upcoming shows. You can reach him at markvenit@cs.com.

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