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Margins and Pricing Power Under Pressure in Many Industries


Saturday, April 24th, 2010

The the cost of living has gone up in sectors which matter most to consumers: food and energy, other sectors haven't been performing as well, and so depending on the particular market being served, pricing power, and ultimately margins, will be a challenge over the next several years and the economy continues to struggle to emerge out of recession.

I know, the media and the Obama administration say we're in a period of recovery, but if that were really so, jobs would be being created and pricing power would be in a much stronger place than it is.

Because people must eat and us energy, those sectors are strong and are inflating, while other areas like apparel have plunged strongly in recent months, and will struggle to maintain margins in the current weak economic climate.

Other sectors related to the home improvement and construction industries like building materials, electrical supplies and plumbing have had costs increase, but they aren't able to pass those rising cost to their customers because it would cause them to cut back on acquiring products and business would falter. The only alternative at this time is to eat the costs and lower margins if they want to generate sales and revenue.

This not only affect hiring, which isn't happening at this time, but it also has an effect on existing workers who have no bargaining power or for quality employees which businesses want to reward with higher salaries or bonuses.

Profit margins at this time have been maintained by increased productivity and cutting costs. But there is only so far that can go before it reaches its peak, and when it does, margins and profits will be under pressure.

Until there is real economic recovery, this will continue to be the way things go, and lower margins and profits will be the norm for a number of industries until pricing again becomes a positive force and tool which can be used by companies to increase their bottom lines.



Article by Gary B

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: business operations , cutting costs , margins , pricing power , productivity , profits