February 8th, 2021
The Great COVID Pricing Shift
For most of my time in the window business, I have seen some manufacturers increase prices annually and others at least every 24 months. These increases are generally for reasons such as inflation, raw material increases or aging workforces, which increase the cost of benefits. Those reasons made more sense to me, even if some didn’t want to acknowledge them as causes. Why? They were factors that affect our own businesses.
The year 2020—and now 2021—is different.
In the past 27 months, I have seen most every window manufacturer in the nation raise prices—three times over, at least. Further, what have historically been increases of 5% or less, have been 5%, 10% and even more.
I have never seen anything like it.
Many vendors have pointed to raw material increases and costs of business, but COVID-19 has muddied the waters to say the very least.
One manufacturer, for example, had an increase just six months ago (or so), basically telling everyone that the sole purpose was to pay their furloughed workers more, so they’d actually come back to work. (You see, with the unemployment stimulus they were making more sitting home.)
This past month has seen yet another round of increases. For most, this makes up the aforementioned third (at least) since January 2019.
I have no doubt that costs are increasing and who knows what’s ahead should the federal minimum wage rate be raised to $15.00 per hour? But I also have no doubt that COVID-19, combined with the unprecedented demand we’ve recently seen, has created a situation where all supply chain vendors are seeing an opportunity—an opportunity to “recapture” gross margin that they feel has eroded during the evolution of a competitive supply landscape.
We know that when one vendor raises their price, others often make the (independent) decision to raise theirs. Remember, this didn’t always happen. Sure, if some of the industry giants raised their prices, it became easier for other manufacturers to follow suit. They could throw their hands up, and just point to other increase letters. But for some companies, this became an opportunity for them to stand firm with their pricing, in order to appeal to new customers and gain market share.
This time, that ain’t happening.
And that, combined with the sheer size of increases, is why I say I have never seen this before.
So, what do we do?
First and foremost, you must recognize this as a pricing shift. You must recognize that everyone in the business is incurring cost increases, and you must, in turn, evaluate your own situation. Know that your competition will, including at least the ones that you should pay attention to—the ones following a system like you do, right?
Second, you must understand your numbers and put things in perspective. Let’s say the average increase in the cost of a double hung is $X. What does it take for you to overcome this in the home? With the product selection you have, this should be a minor hurdle. I encourage you not to look just at replacing the $X, but to replacing the % gross margin loss and raise your total sell accordingly.
Third, you must act now. We are still in a period of incredible demand. If your business isn’t currently growing, it’s time to look inward, because there is something you’re not doing. The business is there to be had, and someone is going to get it. Someone who is absorbing price increases, and raising their sell prices in turn.
Fourth, you must hold your vendors accountable. You must hold them accountable to performing at a level that justifies an increased cost. And you must do this with respect, if that’s what you hope to receive, now and in the future.
Things have a way of ebbing and flowing in life and in business. Right now, supply vendors hold all the leverage. They’re backed up with orders and, frankly, some of them see price increases as a way to weed out weaker customers. But this won’t always be the case.
You want to make sure that as the tide recedes, you’ve put your business in a position to be needed and wanted. Trust me, there will come a day when opportunities resurface for you to gain some ground when it comes to the price/value proposition being offered by your supply partners—especially if you continue to grow.