The Future of Pricing

The place: suburban Milwaukee. The store: Target. The endcap promotion: a $10 queen-sized sheet.

The question: Is this a sign of things to come?

With consumer confidence in a slump, a decline in housing starts and an expected escalation of mortgage rates, industry watchers such as Johnson Redbook and the National Retail Federation have recently predicted home furnishing sales will begin to soften. Add to that Wal-Mart's reported intention to go after customers who have migrated to dollar stores, and one might conclude that we're on the verge of a new low in opening price points.

The irony is that this scenario is unfolding even as retailers push the envelope in product quality and pricing on the upper end of their assortments. Of course, it's not by coincidence that that effort arrived during the first flush of quota-free trading. And now that Wal-Mart has added 400-count sheets to its mix, we can expect all others to race into 600-count programs.

As has been demonstrated with Egyptian cotton sheets, zero-twist towels and bed-in-a-bag, once Wal-Mart kicks the air out of pricing, the stuff is toast.

One could also predict that opening price point programs will increasingly arrive through retail-direct operations. And one hears tales of the more robust overseas retail offices traveling the provinces to book up as much sound capacity as they can uncover.

But there is an irony here, too. From Karachi to Zhejiang, manufacturers are working to scale up their ability to produce better goods. Plants that lack the wherewithal to do so are expected to crash and burn over the next year or so as they learn the harsh lesson of doing margin-crushing business American-style.

Certainly, the industry is in for a long spell of turbulence. Ask retailers how long this free-trade/retail direct/global-supply-chain-initiative business is going to take to sort itself out and they talk in terms of years.

On the domestic front, suppliers are grappling with an ever-consolidating base of large and homogenizing retail customers that require large-scale supplier alliances — even as they work to undermine their profitability, and hence, threaten their long-term survival.

Strange days indeed.