NEW YORK – (AP) – Small businesses that suffered downtime and reduced revenues during the COVID-19 outbreak are now facing another crisis: rising prices for goods and services, squeezing profits and forcing many owners to do Passing increases on to customers.
Mickey Luongo’s business, Total Home Supply, pays up to 15% more for air conditioning and heating equipment sold to other businesses and consumers than it did before the pandemic. Its suppliers have raised their prices because they pay more for raw materials, components, and shipping. Luongo says some of his customers pushed back higher prices.
“We had a contractor who fully understood and agreed to the price increase while other consumers are mad at us and think the price increases are our fault,” said Luongo, co-owner of the Fairfield, New Jersey-based company.
Increasing consumer demand for a wide range of products during the pandemic has driven the prices of finished goods as well as raw materials, consumables and equipment soaring. Product and supply chain bottlenecks have increased costs.
The prices of materials and components used in construction rose 4% in May compared to April and were over 17% higher than last year, according to the Ministry of Labor. Manufacturers paid 2% more for materials last month than in April and 21% more than in May 2020. Added to this is intense competition for labor, which means that some companies are paying more to attract new employees and retain existing employees hold.
While inflation affects all businesses, small businesses are struggling more than their larger counterparts. Large corporations have greater bargaining power because they buy goods and services in bulk and have much larger sources of income to absorb higher costs. These factors make it easier for large companies not to pass increases on to their customers.
Barry Levine is holding back from raising prices for the security and body temperature cameras his company makes for the time being, despite spending up 12%, largely due to higher air freight prices. Levine doesn’t want to lose any business to his competitors.
“We believe this is a tough market now and we don’t want to do anything to affect sales of our products,” said Levine, whose Sperry West company is based in San Diego.
So Levine is looking for ways to reduce the overhead. He classifies the employees according to how many orders the company has from its sales partners; They could get unemployment benefits to make up for lost time.
Even so, says Levine, at some point he expects to have to pass on some of his additional costs.
“I would like to say that we will hold our prices forever, but that won’t happen,” he says.
Some of the price hikes could decline, says economist Ray Keating.
“The best scenario for the recent surge in inflation is that it will be temporary as the recovering economy struggles to bring production, operations, supply chains and employees back to near normal levels,” said Keating, chief economist for the Small Business Advocacy Council and entrepreneurship.
The most likely decrease in costs is energy-related costs, as gasoline and other fuels prices tend to fluctuate. And when the supply chain bottlenecks subside, shippers will likely lower their prices.
But, says Keating, “the second scenario is that inflation is coming, and as the old saying goes, it’s not easy to get back in once the inflationary spirit is out of the bottle.”
Luongo has found that almost everything that goes into making and shipping an air conditioner or heating unit costs more.
“Copper prices have skyrocketed – there is copper in every air conditioning product, and lots of it,” he says. And Luongo’s suppliers pay more for shipping containers that are in high demand; A manufacturer told Luongo that he would only find out how much he would have to pay for a container on the day the ship with its products set sail.
Total Home Supply is more likely to pass any increase on to a general contractor who builds houses than to consumers who can buy air conditioning from chain stores. “We weigh the pricing decisions for each item very carefully and do our best to stay competitive while trying to maintain a profit margin that we can live on,” says Luongo.
Service providers are also affected by higher inflation. As more homeowners remodel since the pandemic began, supplies of paint, lumber and other materials have fallen and their prices have risen, forcing general contractor Victoria Staten to change its pricing policy.
“We went from a 30-day guarantee to just five days,” said Staten, owner of The Upside Chicago. Staten also calculates work and material separately, instead of providing an all-encompassing estimate, as was the case before the pandemic.
The scarcity of materials also increases the cost of staten – it can take several days to find items like crown moldings that used to be easy to find. She has paid the labor costs for these shopping trips but is considering adding extra time for the staff to her bills.
Manny Balani’s vitamin and nutritional supplement business pays dramatically higher prices for shipping, packaging, and ingredients. Miami-based A1 Supplements can pay $ 10,000 for space on a container ship, compared to $ 2,000 before the pandemic and $ 400 for a kilogram of protein or other ingredients, down from $ 50.
Balani has to pass price increases on to customers, but instead of increasing prices across the board, he takes a product-related approach. He has increased the prices of some items by up to 30%, which corresponds to the price increases made by manufacturers. Now he’s watching to see if customers keep buying at the higher prices.
“We take it every day,” says Balani. “The market will dictate whether these numbers are tolerable.”
Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed in any way without permission.