Commodity Prices on the Rise, and Target Set to Follow?

By Laura Heller, dealnews contributor

The first half of 2011 has not been kind to retailers, and as stores prepare for the holidays – yes, Black Friday sales are already starting – it's worth taking a look at what consumers can expect in terms of pricing and sales. And from the looks of things, the rest of the year will be a wild ride.

The economic recovery is either slow or faltering — depending on who is speaking and on which day — and retailers typically bear the brunt of reduced spending. While luxury retail continues to thrive, those with tighter budgetary constraints are being vigilant about spending money. All this comes as commodity prices are also rising on key items, food included, due to increased operating expenses.

In February, Proctor & Gamble raised prices on three of its most popular items: Pampers diapers, Charmin toilet paper, and Bounty paper towels. The company cited rising gas prices for the increase.

According to equity analyst David Strasser of Janney Capital Markets, Target raised prices this spring on apparel, and is planning double digit increases this fall in the apparel and home categories. The retailer has struggled to meet sales expectations in these once strong product categories, but the higher prices are a direct response to higher cotton and labor costs.

Target isn't alone in raising prices: Several food items have also succumbed to inflationary pressure, due to increased feed costs, including meat and dairy. (That threat eased somewhat in June when wholesale prices fell 0.4%.) Still, the most recent Consumer Price Index report noted a 4.7% increase in the cost of food purchased for the home.

Interestingly enough, food purchased away from home only saw a 2.3% increase, indicating that restaurants are doing a better job of absorbing higher food costs than grocers. (That's more bad news for stores like Target and Walmart, which also carry groceries.)

Perhaps the best news for dealnews readers is that consumer electronics companies haven't indicated higher prices heading into the holidays.

Even if Target goes ahead with higher prices, it's not a given other retailers will follow. But it is an indication of pretty volatile times ahead. We're heading into the second half of the year, when retailers will be pulled in opposite directions: Launch sales to lure holiday shoppers and remain competitive, or maintain pricing to protect profit margins and end an otherwise dismal year on a high note.

Like you needed another reason to stay close to dealnews. In order to save money in the face of rising prices, judicious shopping will be all the more important. Sign up for email alerts or newsletters to keep your wallet safe.

Laura Heller is a freelance writer based in Chicago who specializes in mass market retail trends and consumer electronics industries. You can follow her on Twitter @lfheller. You can also sign up for an email alert for all dealnews features.
DealNews may be compensated by companies mentioned in this article. Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).


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