NEW YORK (MainStreet) -- When times get tough, businesses generally have two options to improve their balance sheets: raise prices or cut costs.
Throughout the recession and since, companies have tended toward the latter by trimming payrolls, freezing pay and making their operations as lean as possible, while staying away from significant price increases for fear of alienating customers. More recently, though, many businesses -- including some big-name retailers -- have resorted to hiking prices as well.
|Businesses big and small have resorted to price hikes to boost their profits this year, hitting you where it hurts: the wallet.|
One survey released in August by Barlow Research Associates found that the majority of businesses (53%) with annual sales from $50 million to $500 million had raised prices during the previous 12 months, driven by the increasing costs of primary goods and services. Indeed, some very big-name retailers have hiked their prices to varying degrees, but in the process each risks alienating their customer base in the tough economy.
"When households are faced with financial stress, loyalty to products diminishes and customers will do whatever is necessary to maintain their standard of living in a way that is financially responsible," says Bernard Baumohl, chief economist at The Economic Outlook Group. "They will be willing to substitute, negotiate, see what competitors offer and postpone purchases on items."Companies generally have an easier time raising prices if that increase is for essential products such as food and shelter that consumers need to buy, price notwithstanding, but according to Baumohl, jacking the price of nonessentials such as flat-screen TVs and vacations comes with a greater risk that the consumer might simply choose not to shop. Even so, some companies feel this step is necessary to boost their profit margins. We picked out six major retailers that raised prices this year -- and in some cases did so multiple times. 1. Costco
Costco (COST) announced it would raise the cost of its membership by 10% starting next month, meaning customers will be asked to fork over $5 to $10 extra this coming year depending on which plan they have. This might seem like the kiss of death for a company that has built its success on affordability, but Baumohl expects it won't affect business too much. "I don't think that raising fees at Costco will result in declines in membership simply because there is a perception that Costco is a place you go to purchase a broad array of goods at a discounted price," he says. Raising the price might frustrate some, but it won't change their perception that the store has some of the best deals.
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