(Bloomberg) — Chinese suppliers to major U.S. retailers like Walmart Inc. and Costco Wholesale Corp. said they are hiking prices for the first time in years as raw material costs soar just as factories ramp up production for Christmas.
According to interviews with more than a dozen suppliers over the past two weeks, the increases vary depending on the product and type of customer. Chinese manufacturers are raising prices by up to about 5% for some products for big box retailers, according to five of the people, and the increases go up to 15% for smaller merchants, according to 11 of the people.
Home furnishings like festive cushions are some of the hardest hit products, with prices up 10% to 15%, according to five of the people, who asked not to be identified because the information isn’t public.
The timing is sensitive as the global retail sector enters the critical window in which production orders are placed now to be available for Christmas, meaning inflationary pressure that’s already piling stress on household budgets could build as the festive season approaches. Costco and Walmart declined to comment.
“For these ‘you just can’t skip it’ holiday items, buyers have a relatively high tolerance for price increases, as long as suppliers don’t overreach,” said Cai Qinliang, secretary-general of the Yiwu Christmas Products Industry Association. “They don’t have much choice right? Raw material prices are rising globally and across China, so rejecting higher prices effectively means giving up the business this year.”
Cai said artificial Christmas trees have seen increases of up to 10%.
U.S. retailers have largely held off on raising prices themselves. Big retailers’ wide range of products means that, should they need to lift prices, they can distribute the change through smaller increases across multiple goods, which may be less disruptive to consumers than a spike in just one item, according to Bloomberg Intelligence senior analyst Jennifer Bartashus.
Still, a growing sense of worry is pervading the American consumer landscape as gas prices soar.
Executives at consumer-facing companies like Kraft Heinz Co. and McDonald’s Corp. have warned that shoppers are already tightening their belts, leaving retailers facing the delicate task of easing the pressure on their bottom lines without giving customers sticker shock. China’s role as factory to the world means that concern is likely to ripple globally.
“Higher prices will eventually be passed on to consumers, especially as the war has dragged on and energy prices have stayed elevated,” said Lynn Song, chief Greater China economist at ING Bank NV. A stronger yuan is also making Chinese exports expensive, Song said. “By Christmas season, it’s likely that at least a portion of these price hikes will have materialized.”
There are also signs that retailers see a risk of even bigger price increases in coming months as the prolonged Iran conflict distorts supply chains. Some manufacturers said they started to receive orders for production for the Christmas season in mid-April — weeks ahead of the usual timing.
No Choice
Jason Hu, a sales manager at a knitwear factory in the southeastern Chinese province of Jiangxi, said there’s been so much front-loading that his company has effectively hit its annual sales target and is turning down additional orders due to near-term capacity constraints. He’s raised prices by as much as 10% for orders placed since April to help offset synthetic fiber cost increases of 20% to 30%.
“Buyers have no choice but to accept higher prices when the entire supply chain is moving up,” Hu said. “Large manufacturers like us benefit in volatile times, as clients are desperate for stable quality and on-time delivery.”
The sudden energy shock from the Iran war has been driving input costs higher for weeks, with data showing that the energy crunch helped end China’s three-and-a-half years of factory deflation in April.
Inflationary pressures may increase further, with the full brunt of the jump in raw material costs yet to ripple through the global retail economy.
While retailers are seeing price hikes across key segments, at least one favorite Christmas gift is getting a reprieve: so far, the cost of toys is holding steady. Extreme competition and weaker demand means there’s less wiggle room in negotiations with major retailers.
Thomas Wang, who runs a toy factory in Guangdong, said he didn’t even try to raise prices despite a 50% surge in the cost of some plastic components. Instead, he’s reducing headcount.
“I asked Walmart’s purchasing manager if any peers had tried to pass on costs,” he said. “The answer was no, so I stayed quiet.”
Still, even manufacturers that are able to get higher selling prices say the trend won’t last.
Chen Hao, who operates a bedding manufacturer in Jiangsu province, said he raised prices by 10% to 15% for US and European clients since April. Some major retailers accepted increases of about 5% for new orders, along with faster payment terms.
But “if oil prices fall, clients will immediately push for discounts again,” he said. “After so many years cutting prices, please let me enjoy the rare chance to ask them to pay more for a little longer.”
–With assistance from Yujing Liu, Rainier Harris, Jaewon Kang and Lily Meier.
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