Retailers are poised to boost prices on athletic footwear, apparel and sports equipment as they join other industries in passing along rising costs for commodities, foreign labor and freight.
More than 90 percent of sporting-goods manufacturers paid higher input costs in the first quarter, and 41 percent of these companies already increased wholesale prices, according to a quarterly survey of private, independent vendors and retailers conducted by Robert W. Baird & Co.
“This clearly demonstrates the emerging cost and price pressure across the sporting-good space,” said Peter Benedict, a retail analyst in Stamford, Connecticut, at Baird. “We’re hearing a consistent message from vendors and retailers that cotton, fuel and wage costs are starting to go up, and they’re slowly going to come through on the retail side later this year and certainly in 2012.”
When prices manufacturers paid for imported sporting goods grew 3.3 percent in 2008, retail price tags increased 3 percent, according to data from the Bureau of Labor Statistics. That pattern likely will be repeated following a 2.1 percent rise in April for imported goods compared with a year ago, said Dean Maki, chief U.S. economist at Barclays Capital in New York.
With these prices at the highest level in almost two years, “it would be reasonable” for consumers to pay more, Maki said.
Sporting goods is the latest industry to exercise pricing power, following similar moves by airlines, restaurants and the broader apparel sector that are starting to show up in the consumer price index, Maki said. The Federal Reserve’s preferred gauge, the personal-consumption expenditure index excluding food and energy, rose 1 percent in April from a year earlier, the most since September 2010.
“The Fed is still aiming for higher core inflation, so it will not be worried if retailers are able to pass along some of these price increases,” Maki said.
Policy makers have been boosting their forecast for 2011 inflation excluding food and energy, with the April projection at about 1.5 percent, compared with the January estimate of about 1.2 percent.
Twenty-five percent of sporting-goods retailers already raised prices on apparel in the first quarter, compared with 17 percent a year earlier, Benedict’s data show.
Nike Inc. (NKE) introduced a women’s version of its “Dri-Fit Legend” T-shirt for $22 in February. Sales exceeded expectations, indicating that “consumers ate the extra $2” and signaling that its $20 men’s version soon will cost more, predicted Michael Binetti, an analyst for UBS Securities in New York.
Nike, maker of Air Jordan shoes and VR Pro golf clubs, will “take more significant price increases across a broader range of styles” beginning in spring 2012, Chief Financial Officer Don Blair said on a March 17 conference call after the company reported revenue and profits that missed analysts’ estimates.
Nike’s plans drew criticism from investors because the company didn’t raise prices quickly enough to offset higher input costs, Binetti said. Its stock fell 9.2 percent on March 18. Since Dec. 31, 2009, Nike is up 24 percent, compared with a 48 percent rise in the S&P Retail Exchange-Traded Fund and an 18 percent increase in the S&P 500 ETF.
Binetti said he expects the Beaverton, Oregon-based company will begin raising prices “fairly broadly” in July on apparel before the back-to-school shopping rush, with footwear later this year or in early 2012.
Under Armour Inc. (UA), which makes sporting apparel, shoes and gear, also is planning broad-based adjustments next year, said Brad Dickerson, chief financial officer, on an April 26 conference call. The Baltimore-based company and Nike are “good traffic-drivers” for retailers such as Dick’s Sporting Goods Inc. (DKS) and Foot Locker Inc. (FL), Binetti said.
“These are the kinds of companies big-box stores want to lean on for price increases because they have good products,” he said.
Retailers obviously want to push along higher input costs to consumers, “the question is, can they get away with it,” asked Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. With unemployment at 9 percent, gasoline prices averaging near $4 a gallon nationwide and no significant boost in wages yet, he predicts across-the-board increases won’t come until the second half of 2012, at the earliest.
“Retailers are likely hoping the economy will pick up out of these doldrums, but without that, I think it’s going to be a challenge for them to raise prices,” Feroli said.
Retailers that do go ahead with increases will avoid a one- size-fits-all approach, Benetti said. Companies that will be successful “have earned their pricing power through a proven, sustained track record for innovation.”
While New York-based Foot Locker already is raising some prices, it likely will make more changes in “targeted, sensible ways,” during “the latter part of the year,” Chief Executive Officer Kenneth Hicks said on a May 20 conference call. “We believe these price increases will, in general, be accepted by our customers despite the macroeconomics headwinds,” he said.
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