Why prices increases could eventually reverse course
Brian Cheung gives his take on how the prices increases caused by a tight supply chain could reverse course once the supply chain loosens up post-pandemic.
Video transcript
- OK, but the thing is that people like me will still buy sneakers from Nike, even if they want to charge a higher price to make sure that they can meet their margins. And I think the broader point is that through the last quarter of earnings, if you told People that we have the Delta variant in addition to supply chain issues, which I understand they might be getting worse in Q3-- we'll see what the earnings say-- people would have said earnings were way low-- or they probably would have estimated way lower earnings than we actually got.
And I think what we saw, whether or not that was pricing power and the ability to raise prices, which raises a whole separate question about the transitory nature of inflation, or the ability to cut costs elsewhere, I think that that's actually more bullish for companies to continue to squeak out a good profit in the quarters to come. So I don't know, we'll see. Again, it's a big balance between whether or not you have the pricing pressure or the ability-- or the ability to cut costs. But yes, I will acknowledge your point, Brian. You hear about these anecdotes of people paying 10 times as much as they used to just to get a shipping container from Shanghai to LA. That could definitely be a little bit more of a pressure in Q3.
- I win.
- Mm.
- I don't know. I think the other point, too, though, that I want to raise is that it's not so clear if any sort of pricing pressures that are happening now could be undone in the future. And I understand that there's the whole idea of menu costs, whether or not price changes can be sticky. But I think if you're, for example, a discount retailer, for example, and you're raising prices, that could be something that you could try to reverse.
On the whole, you're not going to see price levels as measured by, say, CPI or PCE reverse, but I think that for some of these industries that have been extremely averse to price increases, that maybe had to resort to one in these extraordinary circumstances, I don't think it's necessarily the case you can rule out any sort of price reductions at some point, whether or not that comes in the form of coupons or just full-on wholesale markdowns. So I think it's just kind of important to remember that prices, when it comes to different types of industries and different types of corners of discount versus more luxury retailers, is a little bit different. But we'll keep an eye on all of those things, and we'll have more hot takes definitely in shows to come.
