(Retail sourcing article updated with additional information on Saks, Limited Brands and Nordstrom sourcing issues.)
NEW YORK (
) -- Retail sourcing costs are, no doubt, increasing. But how much impact will higher prices for labor, freight and cotton actually have on retailers' bottom lines?
It may not be that significant, according to retailers presenting at Goldman Sachs' annual Global Retail Conference, being held in New York this week.
CEO Glen Senk believes the hysteria around rising costs isn't based on reality. While from a percentage viewpoint, it appears cotton prices have risen dramatically, he said it's only up 30 cents per pound. Wool and polyester are even slightly down.
"There will be some challenges with supply and demand, but nothing that is insurmountable, at least for us," Senk said.
But Senk does acknowledge that Urban Outfitters may have an easier time when it comes to pricing then some of its peers. Since Urban Outfitters sells higher priced items it is easier to pass along some of the costs to shoppers. Consumers will most likely be more willing to spend $2 extra on a $150 dress from Anthropologie then a $12 t-shirt from
Urban Outfitters also never operated in the lowest cost factories and utilizes workers that make more than minimum wage.
"We are mindful of sourcing costs, but we are not overly concerned," Senk said.
While other retailers aren't completely disregarding the impact of sourcing heading into 2011, few seem worried.
CEO Terry Lundgren acknowledged inflation is inevitable for 2011, but thinks a little bit of inflation could be a good thing after so many years of deflation.
"At our level, adding a couple of dollars on an item could be good, but if all you do is sell tees at $15, that becomes complicated," Lundgren said during the conference.
Macy's does not foresee any material margin deterioration due to price increases, but does say labor shortages will affect every category.
( JCG) said it's seeing costs increase in the low single digits, but is working with vendors. Like Urban Outfitters, its biggest worry is labor hikes, but notes that it only makes up 30% of total costs.
, like Macy's, believes a little bit of inflationary pressure could be a good thing. "Cost inflation is not a reason at all for alarm," CEO Kevin Mansell said during the conference.
In fact, the value-priced department store has seen cost increases in two of its best performing categories all year -- footwear and home goods. Even with these headwinds, these categories were still able to outperform.
is expecting just a low single-digit increase in overall sourcing and CEO Dennis Nelson said the company will be able to pass on some of these costs to shoppers. It will also add detail and new styling to be able to raise the ticket price on some items.
"We are going to price merchandise where we think it can sell," Nelson said during the conference.
, for its part, is not as highly exposed to cotton prices and labor hikes in China as many other mall-based retailers, Stuart Burgdoerfer, executive vice president and chief financial officer, said during day two of the conference. "On a list of things important to us, cost is not on the top of the list," he said.
, meanwhile, also does minimal sourcing out of Asia, and is more tied to inflections of the euro.
said that it is not planning for inflation to have an impact on margins. "If
headwinds become real, they won't be material enough," President Blake Nordstrom said on day two of the conference.
-- Written by Jeanine Poggi in New York.
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