retail news in context, analysis with attitude

MNB fave Glen Terbeek had a question, prompted by a story run by MNB last week:

Why do retailers wait until a new entrant forces them to get better?  Shouldn’t they continue to improve their offering even without the pressure of outside competitive forces?  In other words, continually compete with themselves.

Check out the first question posted in this morning's Eye-Opener. I'm with you.




Regarding the ongoing competition between Netflix and Amazon, and a Netflix price increase, one MNB user wrote:

I’ve been with Netflix since 2003 and I will never leave.  Their streaming service is WELL worth $8/month regardless of their original programming (though it's OUTSTANDING).  When you consider that cable providers, Amazon and ITunes are charging $4-6 to stream ONE movie, $2+ more for a month of unlimited movies and TV shows for the whole family with the ability to watch on two devices simultaneously is actually a STEAL!  People really need to open their eyes to how much more Netflix is really giving for that $8.  I’d happily pay $20 to be honest.



Responding to comments made by Safeway last week, one MNB user wrote:

Probably just me, but I don’t think I’ve ever heard a retailer announce they are raising prices particularly by saying the plan is “to boost results” by doing so.  Don’t get me wrong I understand the need to do so but not quite sure I get the strategy involved in bringing it to people’s attention.

And another:

I’m not sure how it makes sense for retailers to “hold the line” as you say in passing along increased cost of goods. It’s all a matter of how they do it. First, there is a reason prices go up. Steady, or increasing demand on a dwindling supply or supply source that can’t keep up with demand.  If demand does not soften, cost of goods will continue to rise unabated. The only countermeasure is to slow demand or increase supply until supply and demand find a happy place to live.  In my experience, consumer demand slows when prices rise to a point where folks change their purchase habits. Once that happens cost of goods/retails recede. So, are consumers better of seeing immediate retail increases in times of intense inflation forcing downward pressure on cost of goods at the start, or are they better off with retailers exacerbating the issue by keeping prices artificially low, sacrificing margin and maintaining upward pressure on cost of goods?
 
It is my experience that when retailers try to hold the line on inflation, they do so for only so long then they raise retails well above where they should be to capture margin, and when sales slow to the point that cost of goods recede, they keep retails artificially high for as long as they can in order to make up for margin lost on the front end of rising costs which in turn begins to harm suppliers, especially farmers and ranchers.  
 
Of course I realize that I’m oversimplifying the issues here as there are both long and short term supply issues working today, but I’m always a fan of treating the issue rather than the symptom. Consumers tend to become pretty interested in the reasons behind their wallet getting dinged, which usually serves to get to the root of the problem….especially the long term self-inflicted causes.
KC's View: