The Great COVID Pricing SHIFT
For most of my time in the window business, I have seen manufacturers increase prices every 12-24 months. Some companies, annually…and for others no more than 24 months in between.
These increases are generally for reasons like this:
1. Inflation
2. Raw material increases
3. Aging workforce, increase in benefit costs
They were reasons that made sense to most, even if some didn’t want to acknowledge them. They were factors that affect our own businesses.
2020, and now 2021…has been different.
In the past 27 months, I have seen most every window manufacturer in the nation raise prices…three times, at least. Further, what have historically been increases of 5% or more often less, have been 5%, 10% and even more.
I have never seen anything like it.
Many vendors have simply pointed to raw material increases and ‘cost of business’, but COVID has muddied the waters, to say the very least.
Alside, for example, had an increase just 6 months ago (or so)…and basically told everyone that the sole purpose was to pay their furloughed workers more, so they’d actually come back to work. (You see…with the unemployment stimulus, they were making more for sitting home).
This past month has seen yet another round of increases. For most, this makes up the aforementioned 3rd (at least) since January 2019.
I have no doubt that their costs are increasing…(and who knows what’s ahead should the federal minimum wage be raised to $15.00).
But I also have no doubt that COVID, combined with the unprecedented demand we’ve recently seen…has created a situation where all supply chain vendors are seeing an opportunity. An opportunity to “recapture” gross margin that they feel has eroded during the evolution of a competitive supply landscape.
We can’t call it collusion, but we know that when one vendor sees another raise their price…they often make the decision to raise theirs.
Remember, this didn’t always happen. Sure, if some of the industry giants raised their price, it became easier for other manufacturers to follow suit. They could throw their hands up, and just point to other increase letters.
But for some companies, this became an opportunity for them to stand firm with their pricing, in order to appeal to new customers and gain market share.
This time, that ain’t happening. EVERYONE is raising prices.
And that, combined with sheer size of the increases, is why I say I have never seen this before.
So what do we do?
First and foremost, you must recognize this as a pricing SHIFT. You must recognize that everyone in the business is incurring cost increases, and you must in turn increase your sell price. Know that your competition will…at least the ones that you should pay attention to. The ones following a system. Like you do…right?
Second, you must understand your numbers…and put things in perspective. Let’s say the average increase in the cost of a double hung is $X. What does it take for you to overcome this in the home. With the product selection you have, this should be a minor hurdle. But I encourage you not to look just at replacing the $X…but to replacing the % gross margin loss and raise your total sell accordingly.
Third, you must act now. We are still in a period of incredible demand. If your business isn’t currently growing, it’s time to look inward…because there is something you’re not doing. The business is there to be had, and someone is going to get it. Someone who is absorbing price increases, and raising their sell prices in turn.
Fourth, you must hold your vendors accountable. You must hold them accountable to performing at a level that justifies an increased cost. And you must do this with respect, if that’s what you hope to receive, now and in the future.
Things have a way of ‘ebbing and flowing’, in life…and in business. Right now, supply vendors hold all the leverage. They’re backed up with orders, and frankly…some of them are raising prices actually hoping that they lose some business. But this won’t always be the case.
You want to make sure that as the tide recedes, you’ve put your business in a position to be needed & wanted. Trust me, there will come a day when opportunities resurface for you to gain some ground when it comes to the price/value proposition being offered by your supply partners…especially if you continue to grow.
Oh, and lastly…you might want to consider joining a growing national network, built on sharing ideas and leveraging buying power. You know, like this one.
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