Value Circularity: cotton, colanders & the specialty store market

Considering the economy, the increase in cotton prices is coming at the worst possible time. Truth be told, it’s not just cotton but many commodities. One problem is consumer expectations; they’ll want prices to remain static in keeping with diminished incomes. Compounding everything, the cost of services (even offshore) are also increasing. Meaning, will producers raise their prices and maintain quality levels or will they reduce value to keep prices the same? I don’t think we’ve given the consequences of this nearly enough thought.

If consumers don’t fully understand the mechanism of cost increases, neither do producers. When you send work (money) off shore, those economies become better off. If they’re better off, they start buying goods and services they couldn’t afford before. If those (local) consumers can buy more stuff, producers who used to work for you will produce stuff for their own markets. And why not? With proximity, their overhead is lower. This also impacts things like cotton prices because they now need the fabric for their increasing consumer market meaning less for you and higher costs for what is available. The summary being, in order to make it profitable to continue making stuff for you, they’ll charge you more when you and your customer can least afford it because their increasing consumer base takes up the slack.

But back to cotton prices. The Wall Street Journal says prices haven’t been this high since 1870.

“I’ve seen a lot of big moves, and this exceeds everything,” said Sharon Johnson, senior cotton analyst at First Capitol Group, a financial adviser. “It’s not something you’re going to see again in your lifetime.”

For the apparel industry, rising prices have upended roughly two decades of cheap cotton. Consumers have become used to relatively low prices, making it hard for garment producers to pass on the rising costs, especially as the economy struggles to recover.

The two decade comment is noteworthy; it’s only been in the last twenty years that clothing prices and the value commensurate to them have decreased. I’ve been thinking a lot about this lately, and it’s not just clothes but other stuff too. I think we’ve been making price and value trade offs too long and that is what is really behind consumer discontent. We’ve become increasingly narcissistic, expecting to be served up what we want, when we want it and at the price we expect to pay because we rule. Yes? No? Part of this expectation isn’t incidental; we come to expect lower prices if only due to the computing industry. As computing technology advances, it becomes much cheaper. Somehow we’ve come to expect that mechanism to hold true of every other market. And of course, the customer is always right even when we’re wrong. Am I right or am I right?

Recently I bought a $38 colander. It pained me to pay that much and not given to such things but I love my colander. I’ve been warring over them for several years. They’ve all gotten so cheap and they don’t last. My pricing expectation was a bit of an eye opener. It’s been so long since I could find a good one that I didn’t know what a good one should cost. And that’s the other thing. Because consumers wanted “value” (read: static prices), the cost increases were taken out of the product side resulting in a less costly product considering inflation and all. Which affects distribution and market penetration. Retailers have set price point categories. In many stores, the better stuff got dropped once it hit the highest sustainable range of what consumers will pay. Meaning, eventually the better stuff either wasn’t being made anymore or those who could manage to survive were increasingly shuffled into the specialty store market. Boutique like places. I bought my colander at the a Store. I didn’t intend to shop there. I only went because I wanted to hire one of the employees (a friend of a friend) to come to my house to tell me how the heck I should decorate it because I’m clueless and in our household, I’m the designated boss of such things (blind leading the blind-er). I want to buy all of their furniture too. I almost described it as “incredibly overpriced” but that just means my pricing + value expectations have failed to evolve to reflect the cost of goods for things I like.

Which brings me back to you, the producers. What’s it going to be? What decisions will you make? Will you effectively lower the cost of goods to maintain static prices or will you maintain quality levels and increase prices? And then, what will your competitors do? Maybe this will be okay for you because you’re already selling to the specialty store market -but what if producers who’d been selling to department stores do the same only they hit the big box retail price point limit and they’re increasingly pushed into selling at specialty stores too? What then? You never had to compete with them in terms of sharing floor space.

One benefit of the increase in cotton prices could mean a lot of people get out of the tees market. I see that as a good thing because the market is over saturated and has been for years. If higher cotton prices put a damper on that, I see it as a welcome course correction. Just my opinion of course.

I close with a PSA to consumers: buy now. Between fewer production slots available for existing manufacturers and stratospheric cotton prices, all forecasts point to higher clothing prices next year. And from the rest of you, I’m wondering if you’ve put much thought into the value equation. It’s past the point of planning longer term strategies. I figure that people who proactively work toward implementing in house production will be sitting pretty 3 to 5 years from now when everyone else will be scrambling. What say you?

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