Podcast Summary
Tapestry CEO openly discusses price increases during earnings call: Companies like Tapestry are openly communicating price increases to investors due to high consumer demand and pandemic-related supply, labor, and raw material costs.
During the earnings call of Tapestry, a company that owns fashion brands like Coach and Kate Spade, the CEO openly discussed raising prices, which is unusual as companies typically keep their pricing strategies quiet to avoid alerting competitors and consumers. However, Tapestry and other companies have been able to do so due to high consumer demand and the economic impact of the pandemic on supply and labor costs. Despite inflation moderating, some companies continue to raise prices, and this trend seems to be a departure from the past as they openly communicate these increases to investors. This trend is not limited to the fashion industry, as coffee chains, fast food restaurants, and streaming services have also increased prices. The reasons for these price increases include supply chain disruptions, labor costs, and raw material prices, which have all been affected by the pandemic. While consumers have been willing to pay these higher prices, it remains to be seen how long this trend will last.
CEO discusses success of high-priced Kate Spade handbag: CEO reports strong consumer demand and loyalty to Kate Spade, allowing for price increase on novelty handbag from $400 to almost $500. Other companies like McDonald's, Starbucks, and Disney also raising prices due to similar consumer confidence.
During the Tapestry earnings call, the CEO discussed the success of a high-priced, novelty handbag from Kate Spade, which sold for almost $500. This is a significant price increase from a similar novelty bag sold in 2020, which was shaped like a pineapple and sold for almost $400. The ability to raise prices on non-essential, discretionary items like handbags indicates a strong consumer demand and loyalty to the Kate Spade brand. Other companies, such as McDonald's, Starbucks, and Disney, are also raising prices due to similar consumer demand and confidence in their brands. However, the longevity of this trend remains uncertain, as it depends on various factors including consumer behavior and inflation rates. Ultimately, companies are taking advantage of the current market conditions to increase prices and boost profits.
Economic conditions allowing companies to raise prices: The strong economy and low unemployment rate enable companies to increase prices without significant consumer pushback, as workers demand higher wages and companies need to cover these costs, potentially leading to a self-sustaining cycle of inflation.
The current strong economy and low unemployment rate are enabling companies to raise prices without significant pushback from consumers. This is due to the fact that workers are able to demand higher wages in this labor market, leading to companies needing to raise their prices to cover these increased labor costs. Once consumers accept these higher prices as the new norm, it can lead to a self-sustaining cycle of inflation. Companies, particularly CFOs and CEOs, are benefiting from this pricing power and are being rewarded by the stock market. However, it's important to note that companies are simply acting in the best interest of their shareholders by maximizing profits, and the free market may eventually correct this issue on its own. But for now, consumers may need to adjust to these higher prices as they become the new norm.
Collective action problem during high inflation makes it hard for consumers to distinguish price hikes: High inflation makes it difficult for consumers to discern legitimate price increases from opportunistic ones, potentially leading to economic instability and consumer suffering.
During times of high inflation, when many companies raise their prices, it creates a collective action problem. This makes it difficult for consumers to distinguish between legitimate price increases and opportunistic ones, muffling the price signal in the market. While some argue that people might adjust to higher inflation rates, history shows that once inflation reaches a certain level, it becomes unstable and tends to keep rising. The Federal Reserve has been trying to combat this by raising interest rates to cool the economy, but this could lead to a recession and consumers suffering from job losses. Despite companies being the ones raising prices, it's the consumers who might bear the consequences. Target, Home Depot, and Walmart have reported earnings showing customers are starting to resist higher prices, but it remains to be seen if this trend will continue.
Two possible scenarios for US economy's inflation situation: The US economy faces high inflation, with two potential outcomes: a 'soft landing' of a slowing economy and returning inflation, or a 'darker' scenario of persistent inflation despite Fed efforts.
The US economy is currently grappling with high inflation, and there are two possible scenarios for how this situation may unfold. The first, or "soft landing" scenario, is that the Federal Reserve's actions will lead to a slowing economy, a softening labor market, fewer job vacancies, and a return of inflation to more manageable levels. This is the preferred outcome, as it would allow for economic growth without the negative effects of high inflation. The second, or "darker" scenario, is that inflation may not drop on its own, despite the Fed's efforts, and further tightening may be necessary. Alternatively, it's possible that 5% inflation becomes the new normal. The Fed and economists are hoping for the soft landing scenario, but only time will tell which path the economy will take.
