Retailers Scramble Amid Rising Commodity Prices

This week’s top stories include retailers’ response to rising commodity prices, how the US-China tariffs could be bad for the EU and how low unemployment in the US is leaving manufacturers with a labor shortage. First up, the past few years have seen increases in commodity prices across the globe, with materials like wool and cotton hitting record high prices. Even the price of oil, used to make fabrics like polyester and rayon, is up 50 percent from last year. The typical trend of apparel industries when a certain material gets too expensive is to switch to an alternative substitute. When cotton prices rose in 2011 many brands started selling rayon and synthetic fabric. But that tactic won’t work this time as price increases in all materials mean there’s no cheaper options. Retailers are now finding themselves faced with a difficult choice: either raise prices and lose customers or maintain prices and lose profit. Textile manufacturers are facing the same pressures and in China they’ve even started using government stockpiles of cotton. The rising fast fashion trends that have consumers changing wardrobes every few weeks is starting to put a toll on global commodities. Next up, the European Union, with an economy heavily dependent on trade, is also likely to see a negative impact of the US-China trade war. As the two leading countries in manufacturing, any disruption to the flow of goods between China and the US could influence global business. The German car company BMW exported 2.37 billion dollars worth of vehicles to China last year from the US. With the new tariffs, that flow of cars will likely see cutbacks. In Germany, business confidence has fallen in six of the past seven months. Exports compromise nearly half of Germany’s annual economic output. They now fear a worst case scenario of a complete trade ban leaving any company that manufactures in China or the US unable to export to the other market. EUu growth this year was the strongest it has been in decades. Unemployment was the lowest it’s been since the 2008 financial crisis. Who knows how the new tariffs will affect these numbers. Finally, low unemployment in the US leaves manufacturers with a labor shortage. The US unemployment rate is lower than it’s been in decades. But that fact is leaving many manufacturing companies with a lack of skilled labor. A bottle packaging company in Wisconsin had such a hard time finding workers that they resorted to increasing wages by 25%. But with competitors offering even higher wages this manufacturer had no choice but to turn to automation. The tricky situation with low unemployment is that companies start to increase wages. If those increases get out of hand, it could lead to severe inflation. Low unemployment sounds good on the front page of a newspaper, but for many manufacturers it only provides more stress. Those are just the top three stories from this week. To read the other two, follow the link in the description below. Thanks for watching and tune in next week on Best in Manufacturing!

Norman Bunn

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