The prices suppliers charge distributors for many of the products they sell aren’t likely to decline in 2023. Stubbornly high labor rates, raised costs for raw materials and elevated manufacturing expenses are compelling suppliers to either hold steady on steeper pricing, or to implement additional increases. So are investments in efficiency-enhancing technology, service offerings, cybersecurity and supply chain oversight. Last year, despite supplier average order values reaching a record high in 2022, profit margin fell by more than two percentage points, as suppliers refrained from heaping all their cost increases on distributors.
For the long-term viability of their businesses, some suppliers say they need to strengthen margins. Still, as shipping rates and cargo container costs have declined, select items (such as bigger/bulkier goods like coolers and chairs) may be more price-friendly. Distributors may also be able to find some bargains, too.
“I see a dip in price for overstock items from suppliers that will want to convert inventory to cash with aggressive pricing specials,” says Brandon Mackay, CEO of Top 40 supplier SnugZ USA (asi/88060).
Hover over the bar charts to see more detailed State of the Industry statistics.
“I believe we’ll see additional price increases from suppliers this year. As the cost of capital continues to creep and wages continue moving up, there’s little suppliers can do to hold pricing.”Brandon Mackay, SnugZ USA
(asi/88060)
The percentage of distributors who said they were “concerned” about suppliers raising prices. More than half (53%) said they were “extremely concerned.”
WE ASKED SUPPLIERS
“How challenging do you anticipate setting prices for the upcoming year due to _____?” It was clear that supply chain improvements have eased cost pressures, but labor remains a primary concern.
(Suppliers Who Said “Very Challenging”)
Supplier average order values reached $1,566 in 2022 – a record high and the eighth consecutive year the figure has increased.
Percentage of suppliers who increased sales in 2022. Large suppliers (74%) were the most likely to report growth.
SUPPLIER GROSS PROFIT MARGINS
Price Hikes Aren’t Deterring End-Clients
Though rising costs are certainly concerning distributors, end-buyers are simply used to paying more for just about everything.
While distributors are concerned about promo supplier price increases, the good news is that in an inflation-rampant period in which the cost of virtually everything has gone up, elevated pricing so far hasn’t deterred the vast majority of end-clients from continuing to invest in promotional products.
Ed Levy, president of Edventure Promotions (asi/186055), says accelerated prices have compelled some clients to reduce the quantity of an order to remain on budget and provide target end-users with expected high-quality products. Despite the trade off, essentially the same level of dollar investment in promo continued.
3.3%
Percentage by which distributors increased sales year over year in Q1 2023.
(Distributor Quarterly Sales Survey from ASI Research)
“Consumers aren’t surprised that prices have increased because everything around us has increased,” says Levy.
Even so, he adds that “price increases are always concerning” for distributors and asserts that suppliers need to give advance notice on them – something that doesn’t always happen. “It’s frustrating when you don’t have notice in cases where you send a proposal and then within the life of that proposal, prior to the client signing, the price goes up,” Levy says.
Jesse Goodwick, a principal with Team Phun (asi/342550), says that some customers experienced sticker shock when prices on particular apparel items increased 20% to 30% – a result of the distributorship passing along price increases from suppliers. Such significant jumps have caused the most notable disruption in program business.
Distributors increased sales 5.6%, on average, in the second quarter of 2023 compared to the same quarter the year prior.
(Distributor Quarterly Sales Survey from ASI Research)
“This year we had one customer walk because they didn’t want to pay for the increase,” says Goodwick. “Last I heard, they were using some guy in their garage to print stuff for pennies on the dollar, and I just said, ‘Good luck.’”
While unfortunate, such extreme examples haven’t been the norm for Team Phun. The firm has continued to add new clients, while providing creative solutions and high-quality service levels – all of which has the distributorship tracking toward a year-over-year annual sales increase, says Goodwick.
“We’ve learned to sell on quality and service, so if it comes with a higher price tag, my team sells the experience, service and quality product,” Goodwick states. “Price increases happen in every industry, but when we connect with a customer, meet their budget and overdeliver, it’s a win-win-win.”