Piper Sandler published research for June 2021 stating 67% of retailers said price increases from manufacturers are providing a benefit to sales trends.
At first glance, this idea seems counterintuitive. When prices go up, don’t people buy less?
To be fair, these results are most likely reportings from big box stores, not independent retailers.
So we decided to ask indie mattress retailers what they thought of these survey results, and they had mixed opinions.
Just over 50% of those surveyed said they disagree with the Piper Sandler findings, but nearly 40% said they did agree.
Jeff Scheuer, owner of Mattress To Go in Shelby Township, Michigan, says he’s had to increase prices on a few items, but he’s also eating some of these price increases to help his customers
Others, like Carl Kloudt, president Beds & Beds in Sioux Falls South Dakota, are passing the costs on to consumers. He said if the supplier raises the price five percent, he raises prices 11 percent to maintain margin.
And that’s the basic math behind the report that price increases are providing a lift to retail sales: if the wholesale price of a mattress is $500 and the retailer charges $1,000, that’s 50% gross margin. If the manufacturer raises prices 5%, that unit now wholesales for $525 and, if the retailer maintains pricing, their margin percentage drops to 47.5%.
However, if the retailer uses the manufacturer’s 5% increase as an opportunity to raise their retail prices by 10%, now they’re charging consumers $1,100 for that same bed and they’ve increased their gross margin to 52.27%.
At Sweet Dreams Mattresses and More, Keith Moneymaker says he’s raised prices 10-15% due to supply, but he has some advice for other retailers.
“Keep pricing high so you don’t lose money and get the most bang for your buck on inventory,” he says. “Slashing pricing and major discounting isn’t winning the retail game for anyone.”
Sleep On Mattress Owner Robert Mitzel says whether sales are up right now is beside the point of price increases.
“If we take a survey and say things are good we’re only gonna see more price increases,” he explains. “The big guys and lots of little guys need to keep pushing back or we will only see more increases from manufacturers.”
He goes on to say that when someone is rewarded for certain behaviors, they only do more of it. And furthermore, he thinks the question in the survey is the wrong question to ask.
“Why are sales up right now is a better question,” he says. “Sales are up because people are flush with ‘free money’ and that doesn’t last. What could be a needed windfall for retailers could lead to disaster for main street retailers. Will sales be up as extra unemployment benefits end, stimulus payments stop, and tax refunds run out? How about downturns in the economy and inflation at record levels? If sales don’t continue strong, will manufacturers be willing to quickly reduce prices again?”
Rick Bush, a sales veteran who’s been in the mattress industry for nearly 20 years, says he’s seen mattress prices skyrocket since he hit the retail sales floor in 2003.
“Are prices going up? Yup,” Bush says. “Do customers realize or even notice a difference? Nope, not really. Why? Because lots of retailers have a vast range in price points and most of these mattresses are transactional purchases.”
He adds that he’s yet to see a customer walk into his store and say much of anything about prices of mattresses.
“The fact is you want cheap, here’s cheap. You want expensive, here’s expensive,” he says. “No one notices price changes on $100-$300. Price isn’t the objection. All these 0% financing companies help overcome price issues. As much as we don’t want to think of it, mattresses are mostly transactional. No one can remember what they paid for their mattress 10 years ago. They’re always wrong, they always inflate the price. And we laugh when we look it up and see it was hundreds and at times thousands less than they thought.”
So in conclusion, he says price increases are benefiting retail sales and that everyone has made more money than they ever have in years. But he also warns that you need to be careful because inflation and recession have an ugly way of turning up and crippling your cash flow. “And when that happens, it’s curtains folks.”