Take Five with Carol Schroeder: Expect a retail rebound this holiday season
Carol “Orange” Schroeder, co-owner of Orange Tree Imports, an award-winning gift and gourmet shop in Madison, is looking forward to a stronger holiday sales season despite all the factors working against it. Interviewed in mid-October, there certainly was a lot to talk about, but the topic of the moment is inflation. Prices keep climbing, container ships waited to dock due to supply chain disruptions, and truck drivers were harder to find due to labor disputes and shortages. With all that, the reason she anticipates a comparatively strong holiday season is because this time last year, the store was only open 20 hours a week to five customers at a time. Here are excerpts from the interview.
Since inflation is coming in hotter than expected each month, how is that impacting your pricing as the holiday season approaches?
“Well, we’re seeing a lot of either price increases or freight surcharges from our suppliers, and that is certainly something of a concern, especially to those who don’t have the long view that those of us who lived through past inflation have. There were times when prices went up every single year, and that hasn’t been true for quite a while. So, it may come as a surprise, especially to younger consumers, to see prices go up.
“What we’re finding, at least anecdotally, is that people are so eager to return to in-person shopping, and wanting to support local retailers, that they are not very price conscious at this point. We’re not seeing an emphasis on discounting and having things on sale. I think that people are just happy to be able to go into a store and buy something.”
Are all the calls to shop early or order early having an effect? Are you seeing signs of that right now, given the worry about shipping?
“We’re definitely seeing delays in shipping and shortages of products and products trickling in as opposed to coming in one big delivery. We’ve had fair warning. I mean, we’ve known since the spring that this was going to happen, and we’ve been stocking up for that reason.
“It’s tough on the suppliers because they have merchandise sitting out on the container ships, and if it doesn’t get to port until Dec. 15, most of the retailers have cancellation dates on the orders. So, that’s going to be a crisis for the suppliers, whereas for us, my feeling is that if you come into a shop looking for a Christmas gift and we’re out of A, then you’ll probably buy B.
“It is more of a problem for the big-box stores that have the hot electronic gizmo for this year, for instance, and if you can’t get that, there is no substitute for it.”
Is markup necessarily a trickier thing with inflation rising close to 5% per month rather than 2%, or does the rule you explained in Specialty Shop Retailing — keystone (100% markup of the wholesale price) plus a portion of freight costs — still apply?
“You bring up a good point, and one of the questions is: Is this a temporary crisis? So, if we raise prices, are we then going to have to lower prices again? And if our suppliers raise prices, will they then lower prices again? I kind of suspect that prices on the wholesale level will not go back down just because there haven’t been any increases for such a long time. The cost of raw materials has gone up. The cost of employees is a huge factor, and we know that our suppliers and the shipping companies are having the same trouble as the retailers are having in getting staff. So, the fact that that’s going to go up probably indicates that there will not be a return to former pricing in 2022.”
Anecdotally, what are you hearing from other retailers in Greater Madison about pricing in this economic environment?
“I don’t have a scientific basis for this, but I think the retail community in Madison is really benefitting from the strong buy-local sentiment here. We’re all poised to have a pretty good holiday season. We’re not suffering under the same handicap that restaurants are, where people are hesitant to go in and be unmasked because the mask mandate means that everybody feels pretty protected when they come into a store. I will say that if the mask mandate is taken away, that could be challenging for those of us who want to continue to have our customers be masked.” [Editor’s note: The city of Madison’s latest face-covering order requires masks to be worn indoors through Nov. 27.]
What does this situation do to those occasional special offers by a manufacturer, when a retailer can offer a bargain? Does this simply mean that a bargain is offered at a higher level because everything is relative?
“Well, I can’t say that our suppliers often offer us a great deal because we’re not buying in huge quantities. We do look for free freight offers from suppliers, and you’re right, we won’t see as many of those this year. What we are seeing is there are quite a few business-to-business sites right now representing a whole range of especially small makers and vendors, and these B2B sites such as Faire and Tundra are kind of duking it out, so the B2B sites are offering specials. They must have some startup money or something that allows them to do that, so they for instance are offering you a $150 order from one company if you order $150 from another company. But obviously, no company can do that. That’s a huge discount. So, we’re taking advantage of that wherever we can to protect our margins.”
When it comes to higher inflation, you go back to the mid 1970s, when I recall the president of the United States (Gerald Ford) declaring inflation public enemy No. 1 and putting out WIN buttons to Whip Inflation Now. How does this situation compare to that awful period, which began with oil price shocks in the early 1970s?
“Well, I think the economy is strong in terms of people’s income and the fact that so many have employment, so I don’t see it being the crisis it was back then. If I remember correctly, the cost of borrowing money was enormously high for small businesses, so not only were customers being hit with higher prices, but some people who went into business at that time were paying 22% interest on their business loans, and that’s not really viable.”
Since you have experience with this, what advice can you give to younger retailers who weren’t around during the 1970s, let alone trying to get a business off the ground like you were?
“Well, I know it’s very difficult because the playing field is much more crowded than it was when we went into business, and the competition from Amazon is chilling, but it’s a small blessing that apparently Amazon is going to have trouble with not just supply chain issues, but also hiring enough people to do deliveries. So, the fact that people can walk into an independently owned retail shop in Madison and walk out with a gift to have under the tree on Christmas is going to be a real plus that I hope is something we can take advantage of.”
Because of that buy-local mentality that you mentioned before, does that impact your markup on goods more than say the operator of a mall store?
“Well, I think our prices still have to reflect what we’re paying for the goods. So, that’s always going to be true. In Madison, the rents are not as crippling as they are in some other communities for independent retailers, so that helps also. But I think we’ll definitely see prices going up. There isn’t any way around it if our suppliers are increasing prices, but not everybody is. Some of our suppliers brought in merchandise in anticipation that this was going to happen. Some of our vendors apparently had some cushion built in, and they want to be competitive, so they are not raising their prices. So, we’re not seeing it as an across-the-board increase, which I think may have been true when it was more of a society-wide inflation.”
As you know, global supply-chain delays are so severe that some of the biggest U.S. retailers are chartering their own cargo ships to import goods, a very unusual — not to mention expensive — tactic to stock shelves this holiday season. President Joe Biden announced a deal to expand operations — basically, 24/7 — at the Port of Los Angeles, one of the country’s busiest ports, and we all hope that initiative is successful, but some stores are having trouble keeping things in stock. In terms of the availability of items, what’s your situation and are you hearing similar things from other local merchants?
“Well, I’m feeling the pain on behalf of some of our vendors more than others. So, yeah, I do feel those who have a lot of merchandise tied up in the ports are really going to have a challenge economically getting through this. But we buy from so many companies and so many small companies and so many American-made companies that we’re not hearing the pain across the board. And, at least traditionally, the Christmas season for us is very much concentrated in the four weeks before Christmas, and so I’ve heard from some companies that we’re sorry, we can’t ship until mid-November, and I’m saying that’s fine. If I have it on the shelves around Thanksgiving, I’m going to be OK, but there is a national movement that we’re part of to encourage people to start their shopping in November to take some of the pressure off them not finding what they want on the shelves in December. And a lot of stores are short staffed and that will help with that also.”
Based on what some economists are saying, if we can work through these supply chain issues, that will do a great deal to alleviate inflation. From your vantage point, does that sound correct or is this situation more complicated than that?
“Well, I’m not an economist, but I don’t think this is related to the economy. It’s much more related to the pandemic and the container crisis with not having enough containers and having the ships sitting in the wrong places at the wrong time and then also the cost, which will continue, which is the increased cost of warehouse labor and shipping — truck drivers and such. That’s not going to change, and I suppose that’s also going to be true on the retail and restaurant end. As wages go up, we’ll have to see prices cover those additional costs.”
Click here to sign up for the free IB Ezine — your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.