Analysis: Raising prices easier said than done for U.S. companies

Wed Jun 12, 2013 3:06am EDT
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By Steven C. Johnson and Phil Wahba

NEW YORK (Reuters) - Walt Disney Co last week hiked single-day admission prices at its U.S. theme parks by up to 9.6 percent, the fifth increase since 2009. But other U.S. companies might want to think twice before following suit.

Just ask Kohl's Corp.

The department store chain raised prices two years ago only to see shoppers take their business elsewhere. It has been struggling to make up lost ground ever since and recently said it would ramp up advertising to lure customers back.

While U.S. growth has quickened slightly this year, most Americans are still pinching pennies, aggregate consumer spending is less than 5 percent above pre-recession levels, and companies that try to raise prices risk the wrath of their customers. If the spotty sales performance of major retailers like Wal-Mart and Nordstrom is any guide, regaining a measure of pricing power is a distant dream for most U.S. companies.

"One of the early behaviors that we saw in the downturn was consumers trading down from higher- to lower-priced products. You saw it in everything from soap to beer," said David Axson, a managing director at global consulting firm Accenture. "Consumer behavior, once it changes, takes a long time to change again."

It's been slow to change because even now, four years since the end of the recession, the U.S. economy is far from healed. Massive job losses have ended, but the jobless rate remains at 7.6 percent and that doesn't include many Americans who have left the labor force because they couldn't find a job. And those with jobs earn fractionally less now on average than in late 2008, according to the U.S. Bureau of Labor Statistics.

"Typically, at this point we'd be much farther along, but recovering from a financial-led recession takes anywhere from seven to 10 years, and we're still a ways away," said Sam Bullard, senior economist at Wells Fargo.

In fact, fallout from the 2007-2009 recession - the deepest since the Great Depression - has left companies nearly as shell-shocked as consumers, said Georg Tacke, co-CEO of Simon-Kucher & Partners, a global consulting firm based in Bonn, Germany.   Continued...

Balloons of Mickey Mouse are carried down main street at Disneyland in Anaheim, California, March 11, 2011. REUTERS/Mike Blake