Rising Costs Squeeze Michigan Retailers

LANSING, MI--(Marketwire - Sep 29, 2011) - More than 75 percent of Michigan retailers say they are unable in the current marketplace to pass along the majority of cost increases on the goods they purchase, according to the latest Michigan Retail Index survey conducted by Michigan Retailers Association (MRA) and the Federal Reserve Bank of Chicago.

Forty-two percent said they are unable to pass along any cost increases, while 17 percent said they are able to increase prices to offset all of the rising costs of merchandise. Thirty-four percent reported they can pass along less than half of increased costs and 8 percent said they can pass along most, but not all, of their higher costs.

"Most Michigan retailers continue to be caught between rising costs of merchandise and a highly competitive marketplace that prevents them from raising their prices," said MRA President and CEO James P. Hallan. "While that may be good news for consumers in the short term, it's not sustainable for already strained retail businesses."

The Michigan Retail Index for August found that 46 percent of retailers increased sales over the same month last year, while 29 percent recorded declines and 25 percent saw no change. The results create a seasonally adjusted performance index of 55.9, up from 53.6 in July and 52.1 in June.

Index values above 50 generally indicate an increase in overall retail activity.

Looking forward, 49 percent of retailers expect sales during September-November to increase over the same period last year, while 15 percent project a decrease and 36 percent no change. That puts the seasonally adjusted outlook index at 61.1, down from 74.5 in July and 63.7 in June.

Nationally, the U.S. Commerce Department reported that retail sales were stagnant in August, rising only 0.1 percent.

Note: William Strauss, Senior Economist and Economic Advisor with the Federal Reserve Bank of Chicago, can be reached at 312.322.8151.

Michigan Retail Index
August 2011 results
Index figures dating to July 1994 are available at http://www.retailers.com/mra/news/michigan-retail-index.html

August Performance
Retailers reporting increased, decreased or unchanged sales, inventory, prices, promotions and hiring compared to the same month a year ago
(numbers in parentheses indicate July results)

	% Increased	% Decreased	% No Change	Index*	Responses
Sales	46 (48)	29 (36)	25 (16)	55.9 (53.6)	106 (106)
Inventory	27 (25)	30 (29)	43 (46)	42.7 (51.1)	106 (104)
Prices	31 (31)	7 (7)	62 (62)	60.2 (62.1)	106 (105)
Promotions	24 (31)	4 (11)	72 (58)	62.0 (61.4)	106 (105)
Hiring	11 (15)	11 (6)	78 (79)	49.6 (54.2)	106 (106)

Outlook for Next 3 Months
Retailers expecting increased, decreased or unchanged sales, inventory, prices, promotions and hiring compared to the same period a year ago
(numbers in parentheses indicate July results)

	% Increased	% Decreased	% No Change	Index*	Responses
Sales	49 (59)	15 (15)	36 (26)	61.1 (74.5)	107 (106)
Inventory	30 (32)	19 (22)	51 (46)	51.3 (57.6)	107 (104)
Prices	22 (36)	8 (4)	70 (60)	56.8 (66.3)	107 (105)
Promotions	34 (43)	4 (4)	62 (53)	64.9 (71.3)	106 (104)
Hiring	11 (14)	8 (3)	81 (83)	50.1 (56.1)	106 (106)

August Sales Performance & Outlook for Next 3 Months, by Region
(the first number indicates sales performance for the month; the number in parentheses indicates outlook for the next three months)

	% Increased	% Decreased	% No Change
North	30 (29)	39 (29)	31 (42)
West	50 (46)	23 (12)	27 (42)
Central	53 (58)	31 (5)	16 (37)
East	67 (17)	16 (33)	17 (50)
Southeast	54 (73)	35 (4)	11 (23)

Question of the Month
How is your "pricing power" in passing along cost increases for the goods you buy?
Unable to raise my prices to pass along higher costs 42%
Able to raise my prices to offset less than 50 percent of higher costs 34%
Able to raise my prices to offset more than 50 percent of higher costs 8%
Able to raise my prices to pass along all of my higher costs 17%

*Seasonally adjusted diffusion index. A diffusion index, which is the sum of the percent of respondents indicating increase and half the percent indicating no change, is calculated and then seasonally adjusted using the U.S. Census Bureau's X-11 Seasonal Adjustment procedure. Index values above 50 generally indicate an increase in activity, while values below 50 indicate a decrease.