Shop Talk

Retailers, consumers and prices

BJ’s: Prices are going up and competition may be “brutal”

August 20, 2008

costco1.jpgLate last month, Costco warned its quarterly profit would miss Wall Street estimates as soaring costs and inflationary pressures ate into its margins.

While the cost of the goods it sells was going up, the No 1 U.S. warehouse club operator said it was delaying passing along price increases to shoppers in order to boost its sales and appeal to cash-strapped consumers.

“It is times like this, painful as it may be, that holding off on price-increasing certain key items, by even a few weeks, we believe helps and strengthens our business for the longer term,” Costco Chief Financial Officer Richard Galanti said at the time.

BJ’s Wholesale, the No 3 U.S. warehouse club operator, said on Wednesday that it is  keeping an eye on what its competitors are doing when it comes to marking up their prices.

“Inflation is a huge challenge for all retailers as we try to manage pricing in such a way that we recoup our costs while continuing to deliver value,” said BJ’s CEO Herb Zarkin on a call with analysts. “Our overall goal is to maintain our margin rate but it is quite a balancing act.”

costco2.jpgBut one thing is clear — BJ’s does not intend to undermine its profits by selling goods below cost.

“No rational retailer can accept these kind of increases and expect to make a profit. It’s just not going to work,” he said.

Prices for flour, rice, cooking oils, paper towels, household cleaners, and health care items have soared this year, driven higher the cost increases in energy, raw materials, transportation and labor, BJ’s said.

But general merchandise — which includes jewelry, electronics, tires, books, furniture and toys —  is getting in on the act as well.

“Overall, we are experiencing inflation in most of the general merchandise categories that come from overseas and those items are just hitting the floor,” said President Laura Sen.

What might that mean heading into the holidays for retailers that sell general merchandise, which tends to be more discretionary in nature and the type of purchases that consumers are overlooking these days?

“The promotional environment is going to be brutal,” Sen said.

(Photos: Reuters)

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