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Retailers turn to old tricks to disguise rising commodity prices

Caution: Rising prices ahead.

After holding the line since 2008, retailers are grappling with rising commodity prices across most everything they sell.

• Cotton prices have more than doubled the past 16 months.

• Food prices will rise 31/2 percent in 2011, the U.S. Department of Agriculture says.

• Gas, which accounts for about an eighth of the cost of shipping goods, flirts again with $4 a gallon.

"There's only so much left manufacturers can do on price," said Britt Beemer, Orlando president of a market research firm. "Retailers cannot just keep holding prices forever."

But wary shoppers in this slow recovery make it harder to make higher prices stick, so easing them in has become topic No. 1 among merchants. Masters of illusion, they're old hands at coaxing shoppers to part with a bit more cash while persuading them they've done all they can to ease the pain. Shoppers need pocket calculators to keep up with some tricks of the trade:

• Raising prices by shrinking the product. Most common on products where volatile commodity prices change often, like coffee, the tactic is spreading to every aisle. A true half-gallon of ice cream has become so rare that Publix and Blue Bell now promote the size of their premium labels as a product attribute against rival brand names that weigh in at 11/2 to 13/4 quarts and puff up the product with air to fill the container. Consumer Reports recently found a roll of Kirkland Signature Paper Towels at Costco shriveled 12 percent, a 30-ounce bottle of Ivory Dish Detergent honed down to 24 ounces and the 29 slices in a package of Kraft 2 Percent Milk cheese trimmed to 22.

• Using same-size boxes for varying amounts. If food is hidden in a box like cereal, use unit prices to know how much is inside. Virtually all 12 types of Kashi cereal, for example, were priced around $3.18 a box last week. The boxes looked the same, but contained eight different weights.

• Selling concentrates to reduce packaging. Shelf tag unit price comparisons mean little in some places. The most popular laundry detergents, Tide and All, now come in concentrated forms (some are 2-to-1 and others are 3-to-1 over the old formula). That saves big on packaging costs, leaving shoppers to compare prices by the number of loads a bottle cleans.

• Hitting lower-profile products. Some price increases are harder to find because of how stores manage profit. Higher-priced items are stocked at eye level while the cheaper ones go on the bottom shelf. So-called category managers use computers to manipulate prices across all products, such as dog food, to maximize store profit. Pricing people shave pennies off the most popular size and slap them on a slower-moving size with less price sensitivity. A restaurant might bump up a side dish by 50 cents or $1 while entrees hold firm. Another stunt: raising prices on so-called blind items bought only in times of need. Think a plumber's helper (they go for less than $3, but few people expect to pay so little) or a car battery.

• Featuring a few dozen "buy one, get one free" offers on high-volume items to bolster the store's price image while easing up prices elsewhere. Other chains have created ultra-low-cost store brands like Walmart's Great Value to offer shoppers a less expensive option. Sweetbay Supermarket this spring will promote a new budget line called My Essentials, about 300 items ranging from bacon to onions and packaged goods priced the same as Great Value.

• Finding other ways to cut costs. "It's so tough holding prices that dollar stores must get creative or rethink their name," said Steve Kirn, executive director of the University of Florida retailing program. "I just got dill pickles at Dollar Tree. They tasted fine, but were made in India, and the jam was from Egypt." In the apparel world, cotton prices are about a third of the cost of a garment. So stores are leaning on offshore manufacturers to cut other costs and rethinking embellishments like flashy buttons, pricey fabric finishes and bulk up on polyester blends for basics like T-shirts.

"The apparel industry is one of the last to use automation to be more efficient, but they just cannot continue to avoid it by closing obsolete plants and moving," said Ram Sareen, founder of Tukatech, a Los Angeles firm that advises apparelmakers in 16 countries. "There is nowhere left to go except Haiti and Africa."

Clothing prices, which adjusted for inflation have not risen since the mid 1990s, are not expected to spike, but rise steadily up to 10 percent by fall. Levi Strauss & Co. just increased wholesale jeans prices by $2 while Macy's is testing price increases of 50 cents to 75 cents.

"We're feeling out price resistance," said Jim Sluzewski, a spokesman for Macy's, which is resisting cheaper embellishments and finishes on fashion goods. "We want to be less about low prices and more about a great product at a great price."

Even in these times, you get what you pay for.

Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.

Retailers turn to old tricks to disguise rising commodity prices 03/14/11 [Last modified: Monday, March 14, 2011 10:01pm]

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