Finance Chiefs Look to Price Increases to Offset Higher Commodities Costs

Date: Wednesday, March 10, 2021
Source: Wall Street Journal

Consumers could expect to see prices on goods from mattresses to storage containers increase as finance chiefs try to offset higher costs for raw materials.

Companies across a range of industries are grappling with higher prices for commodities such as lumber and steel, which are rising in response to greater demand from consumers who are spending more money for appliances, cars or to remodel their homes. Freight and shipping costs also have increased due to surging online orders and shortages in shipping containers.

Costs for some petrochemicals, which are used for consumer goods such as medical equipment and mattress foam, began to increase in late 2020 and went higher after producers temporarily shut down operations during the recent winter freeze in Texas. Prices for polypropylene, a type of plastic, have surged 22% over the past month in the spot market, to $2,398 per metric ton as of March 5, according to S&P Global Platts, an energy market data firm.

Jeff Miller, the chief financial officer of Container Store Group Inc. which sells plastic storage boxes and other home-organization tools, said the rising cost of polypropylene could put pressure on the retailer’s gross margin. That figure on a consolidated basis fell 90 basis points to 57.9% in the third quarter ended Dec. 26 compared with a year earlier, due in part to higher shipping costs. Sales rose 20% during the third quarter to $275.5 million, driven by the home-improvement boom spurred by the pandemic.

Container Store is weighing whether to raise prices on some of its products, Mr. Miller said. “It’s always on the table,” Mr. Miller said. The company said it could also negotiate with its vendors or adjust its sourcing to compensate for the higher commodity costs.

Sleep Number Corp. , the Minneapolis-based mattress seller, has already decided to increase prices this year to offset the higher cost of certain chemicals, finance chief David Callen said. “We have not put them in place just yet, but we will definitely be doing that,” Mr. Callen said.

The company has contracts in place that delay the timing of when its foam suppliers can pass on higher input prices. But the company nonetheless expects to feel an impact, Mr. Callen said. Sleep Number declined to disclose additional details about its plans to raise prices.

The company said it raised prices in the past, often by low single-digit percentage points. Sleep Number’s beds start at about $1,000 and can cost several thousand dollars. The company’s net sales during the fourth quarter ended Jan. 2 rose to $567.9 million, up 29% from the year earlier period.

La-Z-Boy Inc., the Monroe, Mich.-based furniture company, began raising prices by low- to mid-single digit percentages on new furniture orders in October, said CFO Melinda Whittington. Ms. Whittington, who will take over as chief executive in April, said the increases affected all products and were made in response to higher prices on chemicals, wood and steel.

The furniture maker is currently working through a backlog of orders, with lead times ranging from five to nine months, up from several weeks before the pandemic. That means La-Z-Boy is delivering orders that were placed when sale prices were lower, she said. The company, which expects to benefit from higher prices in the current quarter, generated $470.2 million in sales in the third quarter ended Jan. 23, down 1% from a year earlier.

Some raw material costs could remain elevated this year. The price of polypropylene for example is expected to drop from its recent peaks as more producers reopen their plants, said Jennifer Van Dinter, head of integrated analytics at S&P Global Platts.

Still, prices for the chemical will likely remain elevated compared with 2020 due to strong demand for durable goods and medical supplies, she said.


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