With economic recovery from the pandemic underway in various parts of the globe, the licensing community is on edge about rising costs and higher prices.

Some level of inflation is almost guaranteed, given soaring costs for shipping and handling goods. For example, prices for 40-foot containers have tripled from a year ago to $12,000-$15,000. And that’s when tight space on containers can even be secured for shipping from ports near factories to warehouses in the markets where the goods are to be sold to consumers. And port congestion is an issue; in some cases, for example, shipping time has doubled to six weeks as cargo waits outside major U.S. ports in Los Angeles and Long Beach, CA.

U.S. Prices Up 5% in May
The twin factors of increased costs and surging consumer demand is driving inflation. U.S. consumer prices surged 5% in May (compared to a year earlier), the biggest increase since 2008. Prices rose 0.6% from April. In Europe, the annual inflation rate hit 2% in May, up from 1.6% the month before and the highest rate since October 2018. In Germany the rate rose to 2.4%; the Bundesbank is forecasting it to soon reach 4% for the first time in 30 years.

Kroger and Albertson’s executives said separately last week they expected retail prices could rise 3-4% given their added costs, but with little pushback from consumers, given that many shifted to buying more premium products during the pandemic. Both Walmart and Target have noted “inflationary pressures” in recent weeks, but are trying to hold the line on prices. Some have noted that retailers who have large sourcing operations and direct-import programs are being hit with the same increases as their third-party suppliers, so aren’t resisting price increases as dogmatically as they might otherwise.

No Choice
Licensees say they might have little choice but to increase wholesale prices. A dinnerware supplier that works with licensed artists passed on a 2.9% increase this past January and is projecting a 3% increase for January 2022.

Mark Feldstein & Associates, which has licenses for Coca-Cola, Peanuts and others, is forecasting 2-15% increases (depending in part on how many it can get shipped in at a time) for the sound clocks and LED candles it sells through its Amazon Marketplace business, says CEO Mark Feldstein. The majority of Feldstein’s retail customers (85%) direct import the company’s products, so are responsible for their own shipping cost increases.

“There’s no way the retailers will eat the increases,” says the dinnerware company executive. “We live in a low margin world. Retailers will push back for lower wholesale prices, and only increase prices to maintain margins.”

Some retailers and licensees will be more selective in price increases or in some cases may modify their assortments and strategies.  For example, Five Below is expanding its Five Beyond in-store format – products priced in the $1-$5 range vs. the typical $1-$2 – to 200 stores by year-end.

“The last place we go is raising prices,” CEO Joel Anderson said earlier this month. But the Five Beyond concept is “a nice way to overcome the pressures of inflation” he said. Meanwhile, Neil Rossy, CEO of Canadian retailer Dollarama expects that  inflation won’t impact the company’s  sales unless it drags on for a year.

G-III Apparel, a Calvin Klein and Tommy Hilfiger licensee, is “selectively raising prices” to offset higher freight costs,” says CEO Morris Goldfarb. G-III is increasing wholesales to the point where the retail price for select dresses and coats is increasing $5, says Goldfarb. “That’s a big deal when you sell millions of units of products,” says Goldfarb. “There’s little room to offset potential increases in containers and possible increases on some production costs,” Goldfarb said. The price increase is “not monumental, but it works.”

How long the higher logistics costs will continue is open to question. Many of the suppliers we polled expect them to potentially ease somewhat in the fall, but pick up again for the holiday season crunch, before stabilizing in the first quarter.

“Companies won’t rush back to put a lot of ships into commission and they will likely be a little stingy on the container space” going forward, says Feldstein. “The more space that’s available, the cheaper it gets, so shipping companies will be tighter on space so they can get the maximum amount of revenue.”

Whether retailers and consumers will be faced with continued price increases will depend on how much costs continue to increase Emily Aldrige, Head of Global Licensing at Abysse Corp. said during last week’s Licensing Essentials Course, staged by Licensing International.

“At the moment there is a knock-on cost because container prices are insane,” she said.  “Everyone is fighting to get containers and also to fill them.  But if those prices level off and next year they are back to normal, then everyone can breathe a sigh of relief.  If not, then inevitably there will be a [price] increase because as costs rise so will prices.”