weekly feature | May 12, 2021 |
Brands are raising their prices. Why now?

The emails started to roll in about three months ago, and they continued to come in a steady stream. They are sent from brands big and small, addressing designers in an earnest tone (“Due to these unprecedented times … ”). They’re similar, formulaic even, all acknowledging the ongoing challenges of operating a business during a global pandemic. They all end the same way: Prices will be going up.

Just how much, and how the charge is applied, depends on the brand. Some are tacking on surcharges for freight shipping, while others are raising the prices of their products flat out. Most of the increases hover around 3 to 5 percent, but Philadelphia-based designer Glenna Stone says that she has seen some upholstery makers—impacted by both foam shortages and astronomical rises in the costs of materials and shipping—hike prices up 10 percent. “It’s usual to see a slight increase at the beginning of a new year,” she says. “But what isn’t normal is the amount that things are going up or the surcharges that are getting tacked on.”

While most people can understand that the pandemic has disrupted the global supply chain, it can be hard to grasp why these price hikes are just now going into effect. We’re more than a year into the pandemic, which can feel like it’s finally ebbing in many parts of the world. Why would companies need to add line items now when there’s light at the end of the tunnel? The answer has to do with three challenges: a lack of raw materials, a labor shortage, and shipping costs.

The scarcity of raw materials runs a wide gamut, from the aforementioned foam shortages (due to disruption at plants in both the U.S. and Europe) to the diminished availability of adhesives, glues and epoxy resins, which are essential ingredients for many paints and coatings. Gary Pettitt, the CEO of the trade furniture brand Seasonal Living, which has implemented a 5 percent container surcharge fee, says that the brand recently wasn’t able to get the white concrete powder it uses to make some of its tables. “There simply wasn’t enough supply,” says Pettitt. “We’ve resolved that now, but there are other materials, like reclaimed teak, that are still incredibly difficult to get at the moment.”

The shortages stem from an unprecedented increase in demand across the home and construction industries worldwide, coupled with the fact that every country is at a different phase of COVID recovery. While some are ramping back up to pre-pandemic efficiency, others—India, for example—are very much still in the grips of the pandemic. China, too, went into another lockdown in January. And because the vast majority of imported goods pass through Asia at some phase of manufacturing, the ripple effect of those workforces stopping and starting is widely felt.

“Something that the pandemic has exposed is how interconnected we all are,” says Pettitt. “While you might think, ‘I’m a designer in Texas—what’s happening in India won’t affect me,’ right now, it absolutely does. If a country is locked down or its people are too sick to work, things aren’t getting produced. In the home sector right now, part of our job is to look at what’s happening on a global scale.”

Because COVID is still raging in many parts of the world, many factories are keeping social distancing guidelines in place, which can slow the pace of production. Those slowdowns are further complicated by an issue that started long before the pandemic: a growing shortage of factory workers.

In the U.S. alone, manufacturers are down some 570,000 jobs from pre-pandemic levels, despite a near record number of open positions. It's not a uniquely American phenomenon, either: In China earlier this year, the government estimated that the country had more than 1.4 million job openings in manufacturing. Both countries are facing the same problem—a multigenerational shift from trade schools to universities, resulting in a middle class that doesn’t look to the manufacturing sector for career opportunities. Put simply: There aren’t enough factory employees to meet demand.

Then there’s the shipping problem. Surging demand for goods—from furniture and building materials to medical supplies—and a shortage of empty containers at Asian ports have sent container-shipping costs through the roof. According to The Economist, the cost of shipping a 40-foot container from Asia to Europe has risen from around $2,200 in November to more than $7,900 today. In an email to its dealers last month, for example, North Carolina–based trade brand Bernhardt explained that the company is currently paying two to three times its contracted rate for ocean freight.

“Last year, every company took their foot off the gas and tried to slow production down, because we didn’t know what was going to happen,” says Pettitt. “When that happened, this well-oiled machine that is the global supply chain got disrupted. Now, everyone is trying to ramp up production at the same time, and there just aren’t enough containers to accommodate the demand. The ports are so congested—we had a container that sat off the coast of Los Angeles for over two weeks because the port was so backed up.”

Once a container does make it off a ship, it then has to be driven to its destination, but the cost of truck transportation has also markedly increased. Pettitt estimates that Seasonal Living is paying 30 percent more per full truckload than the company did two years ago. The trucking industry is facing a labor shortage of its own, with an estimated 1.1 million open jobs. While the shortfall was already looming pre-pandemic, the problem has been compounded by the fact that COVID regulations lengthened the process of securing a commercial driver’s license. When it rains, it pours.

Given the increase in prices at every step of the manufacturing and supply chain, the surprising thing is not that brands are raising prices now, but that they didn’t do it earlier. Many were able to tread water in 2020, working under the assumption that some of these challenges would prove to be short-lived. They weren’t—and brands at all levels of the market are finally facing the inevitable. Summer Classics emailed its trade accounts in March admitting that the raw material and freight increases made a new surcharge unavoidable. A similar email from Sonder Living, sent last week and announcing a new pricing list, says, “We have avoided passing on the dramatic increase in our costs for as long as possible.”

“Over the past six months, we have received and absorbed large increases in material purchasing and global logistics costs,” says Nathan Copeland, the president of furniture brand Highland House. “Many of our suppliers have raised their prices two and three times since January.” Copeland says that Highland House and its sister companies including Hickory Chair and Century, have implemented a surcharge to help offset what he calls "the ever-changing cost environment."

The big questions become: Are these price hikes here to stay? And in the meantime, what’s the best way for designers to accommodate the rising cost of goods?

Stone says that much of the communication she has received from brands indicates that these changes are intended to be temporary measures, but none of them have indicated any time frame. In the meantime, designers are generally passing on the higher costs to their clients. “When I meet with a new client now and I tell them what it’s going to cost to do their house, ... I’m probably estimating between 10 and 20 percent higher than I was six months ago,” says Andrew Howard, a designer in Jacksonville, Florida. “You have to be upfront with people and let them know that not only is it going to cost more than it used to, it’s going to take longer as well, because we’re also facing unimaginable delays.”

For her part, Stone began sending out a newsletter to clients educating them on the production issues facing the design industry. “We’re trying to be as open and honest as possible,” she says.

Ajia Monet, a designer based in Washington, D.C., has seen so many increases over the past few months that she has had to redo quotes she had given to clients. “In one case, I sent a quote over to a client and had to send a revised version within two weeks because the prices shot up that suddenly,” she says. She has even started broaching the subject on discovery calls with potential clients. “We let them know right upfront that we can’t promise any sort of timeline at the moment,” says Monet. “We tell them it’s the wild west.”

Homepage photo: © adragan | Adobe Stock

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