Lowe's CEO laments "unprecedented" price increases

[Tooltime7]

Well I guess it starts... you'd have to think so with the price of steel basically doubling worldwide in the last year or so.

I saw a report today in which Lowe's CEO stated that "Price increases from their suppliers are coming in at an unprecedented rate." This is probably going to be the sentiment going forward for everyone in the hardware industry (or basically any other industry for that matter)

And if Lowe's or Depot are unable to withstand it, well that doesn't say much for the leverage of the smaller guy. It just seems that tables have turned here...

Thoughts on the situation going forward?

 

[PAToyota]

Where have you been? Materials costs went out of sight about three years ago. This is just a continuation.

 

[Tooltime7]

Where have you been? Materials costs went out of sight about three years ago. This is just a continuation.

Under a rock, in a cave, on Mars apparently....

What I am talking about specifically, is the price of steel, which is obviously a major component in most tools. Steel, actually, has been fairly consistent up until about November/December of 2007. The price has since more than doubled. The effects of this has NOT yet fully hit the consumer, which I see as an underlying theme in the Lowes CEO's statement. I just think that the retail world a few months from today will be very different.

 

[boiler7904]

If it's metal, oil, or uses a lot of oil in in it's production prices are crazy right now. I have a pre-engineered steel building supplier telling me that on commercial construction projects, they will only hold steel prices for 10 days from date of quote to material delivery at the jobsite which is impossible when you look at the typical timeline. Figure a week or two to review bids, finalize any bid clarifications and write a contract if you're lucky - closer to a month minimum on a government job. Then it takes at least a month from contract award to create shop drawings. Add in a week or two for us to review them as the architect and you're at a minimum of 6 weeks - usually pushing 10 or 12. Then they need to wait for a production slot to open. Assuming a simple building you have 2-3 weeks of fabrication time. Add in a couple days for transit to the site you've suddenly turned pricing that's only good for 10 days into a 9 or 10 week ordeal and the price keeps climbing the entire time. Since October, I've had two jobs where the steel has gone from about $240k to about $320 for a variety of reasons.

The retail price thing is going to get just as crazy in the next few months. Makes me that much happier that I got a new Milwaukee 6185-20 cut off saw a couple of weeks ago for $219 from HomeDepot.com when everyone else lists it at over $550. Damn thing weighs about 25 pounds - mostly steel and copper except for the plastic body and trigger.

 

[Joe B.]

Where have you been? Materials costs went out of sight about three years ago. This is just a continuation.

What is new is that there have not been huge increases in the prices of consumer goods even though materials ran up a few years ago. A lot of this is because big companies like Lowe's, HD & Wal*Mart had the power to make their suppliers 'eat' the cost increases through lower profitability. Car prices have not even gone up much even though steel is much more expensive. All those companies can't/won't 'eat' the increased cost forever and they will eventually pass on those costs on to retailers who will eventually pass them on to all of us.

I did not see where the Lowe's CEO made this announcement, however I bet it was a very calculated announcement. If the Lowe's CEO call us the Home Depot CEO and says "we are going to raise prices so that we can remain profitable, Home Depot should do the same thing," they both go to jail. However, if the Lowe's CEO announces on TV that they are going to be 'forced' to raise prices no laws are broken. The Home Depot executives then have a choice, they can either keep their prices low and chase additional nonprofitable sales or they can raise their prices and make more money. Airlines do this all the time. One airline will announce a price change and all of the others will change on the same day. When you are part of duopoly in which neither company can truly dominate the other, it is usually most profitable to not be aggressive on pricing. If HD & Lowe's decided to have a price war, the consumers would win but both companies would lose. FedEx & UPS are a great example of companies that compete but are smart enough not to ruin a good thing by being 'too' competitive.

 

[jimvannoy]

What pisses me off is those metal carport places. There is one around here that has like 40 or 50 sitting in piles ready to install. The price goes up every couple of weeks for the same pile of parts that has been sitting there for months and months.

 

[Tooltime7]

http://www.cnbc.com/id/25349920/for/cnbc/

My apologies, it was their CFO, not CEO.

 

[Joe B.]

Oh, shipping costs and exchange rates are also making imported good more expensive. Anything that adds cost is bad for consumers but that might help keep some things domestic. There was a great article a week ago in the Wal Street Journal about manufacturing companies moving production back to the USA.

 

[stricht8]

Hey, maybe the crappy exchange rate and high fuel costs will have a positive effect on our economy.

Oh, shipping costs and exchange rates are also making imported good more expensive. Anything that adds cost is bad for consumers but that might help keep some things domestic. There was a great article a week ago in the Wal Street Journal about manufacturing companies moving production back to the USA.

 

[foul_ball]

All the more reason now to stock up on tools before the prices go up. =) Viva la ebay!

 

[SteveU]

Anyone looking at or wanting to buy a lift should get one now, I was told that the prices are going to go up 8-10% which is quite a chunk of change on something this expensive. An example is by getting my Mohawk when I did I probably saved 500.00

 

[PAToyota]

I have a pre-engineered steel building supplier telling me that on commercial construction projects, they will only hold steel prices for 10 days from date of quote to material delivery at the jobsite which is impossible when you look at the typical timeline.

What is new is that there have not been huge increases in the prices of consumer goods even though materials ran up a few years ago. A lot of this is because big companies like Lowe's, HD & Wal*Mart had the power to make their suppliers 'eat' the cost increases through lower profitability.

I guess being in the building field, I was more aware of the price increases about three years ago and the nearly daily increases during that time - as Boiler mentions.

The reason that it did not affect things like tools so much was that the actual cost of the material in a tool is relatively small compared to the price of the tool. Structural steel is a commodity - you pretty much by it by the ton. When I was starting out, the rule of thumb for estimating projects was a dollar a pound and that figured in transportation and erection costs. A fifty-three piece toolset at Sears weighs about five pounds and costs $50. How much of that is steel? Probably half or less. So your costs are elsewhere.

What is hitting the prices now is the cost of transportation more than the cost of materials. Actually, over the past year materials costs have stabilized considerably from where they were three years ago.

 

[MustHang]

What is hitting the prices now is the cost of transportation more than the cost of materials.

Exactly and if we're lucky, we may be able to buy more local stuff since chaiwanese stuff will be approaching local stuff price, excluding snap on of course.

 

[G1K]

It's about time. Maybe the price increases will help some people beetter analyze their spending habbits.
R

 

[geaugafletcher]

Half (or more) of the stuff at Lowe's and Home Depot isn't worth the current cheap price, let alone higher prices!

 

[PAToyota]

Exactly and if we're lucky, we may be able to buy more local stuff since chaiwanese stuff will be approaching local stuff price, excluding snap on of course.

I've already started to see some of it. It has begun to make local manufacturing and farming more cost effective. It has always amazed me that it has been cheaper to import apples from China and ship them around the world than to buy them from the orchard down the street...

So there could be a silver lining to the fuel costs.

 

[boiler7904]

I had a meeting with a steel fence manufacturer's rep today. He said that since they keep a year supply of coil stock at all times, they've only had to increase prices by 25% since the first of the year. Without the inventory they keep, they would have easily hit a 40 or 50% increase. He said that they are proud to say as an American company in OK, they will not buy material from China. Everything comes out of domestic mills.

The biggest problem he told us was that once the tarriffs on imported steel went into effect a couple of years ago and raised its prices, American producers raised their price to match and make that much more profit. Now, prices are artifiically high and we're all paying the price either directly or indirectly. Expect the trend to continue for the forseeable future.

 

[eschoendorff]

I had a meeting with a steel fence manufacturer's rep today. He said that since they keep a year supply of coil stock at all times, they've only had to increase prices by 25% since the first of the year. Without the inventory they keep, they would have easily hit a 40 or 50% increase. He said that they are proud to say as an American company in OK, they will not buy material from China. Everything comes out of domestic mills.

The biggest problem he told us was that once the tarriffs on imported steel went into effect a couple of years ago and raised its prices, American producers raised their price to match and make that much more profit. Now, prices are artifiically high and we're all paying the price either directly or indirectly. Expect the trend to continue for the forseeable future.

That *****.

I was in Nashville this weekend and went to several western shops... many of you know I have a penchant for hats. I was in store after store with Chinese goods (shirts, boots, ect) going for the same - if not more - than goods from North America. Unfortunately, no one seems to care, as long as the item looks cool.

Meanwhile, I got myself a nice, genuine Stetson... at a price that, while not cheap, I couldn't refuse. My wife took one look at me in the hat and said I had to buy it.