NEW YORK – Walt Disney Co last week hiked single-day admission prices at its U.S. theme parks by up to 9.6%, 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% 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% 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.
Under pressure to maintain profit margins, firms have focused on cutting costs to the bone and hoarding cash rather than using it to hire workers or invest.
But there's a limit to how lean companies can get.
"At some point, they have to act on prices, and many have forgotten how to do it, and more importantly, have not educated their customers to expect it," Tacke said, adding that could hurt bottom lines once growth and inflation start rising.
For now things look set to get worse before they get better. Most economists expect the U.S. economy, facing government belt-tightening and higher taxes, to slow from the 2.4% growth rate it logged in the first quarter.
That's helped keep price pressures throughout the economy in check. Consumer prices rose just 1.1% in the year to April. When stripped of food and energy costs, they were up 1.7%, the smallest rise in nearly two years.
Against such a backdrop, "only companies that offer differentiation, whether it's the product or a service, have any pricing power," said Joel Bines, managing director of consulting firm AlixPartners.
Disney could hike prices by much more than the inflation rate because of its unique offering - an experience customers can't easily match elsewhere.
Others have relied on innovative product development to keep up profits. While Apple Inc has not raised prices, it has managed to get customers to keep buying its relatively expensive iPads and iPhones by rolling out frequent product upgrades.
But companies that cater to middle-income consumers, like Kohl's, or offer goods and services that are largely interchangeable with those sold elsewhere, are more constrained.
"If you're talking about the Wal-Marts of the world, the supermarkets and big box stores, it's fair to say they have relatively little pricing power," Axson said.
The most recent season of corporate earnings proved how cautious consumers are. Wal-Mart Stores Inc's U.S. same store sales fell last quarter and department store group Nordstrom Inc lowered its sales forecast.
Purveyors of luxury goods such as watches and jewelry, or high-end hotels, whose wealthy customers weathered the recession well, are better placed to raise prices. A rising stock market and recovering home prices have been a big help.
Tiffany & Co implemented price increases in early 2013, in part to contend with higher diamond prices, but that did not prevent it from selling more high-end jewelry.
But even at high-end chains, there is a limit to pricing power. Sales of less expensive jewelry at Tiffany have sagged.
Luxury department store chain Saks Inc, which has been trying to wean customers off of promotions since the financial crisis eased, offered bigger discounts at a sale in April than a year earlier.
MORE YEARS TO GO
There are still industries where demand exceeds supply, and that has already helped some companies regain pricing power.
Consolidation in the airline industry has put an end to the days of fierce price wars between carriers, with average fares up about 8% between 2008 and 2012, according to the U.S. Bureau of Transportation Statistics.
U.S. automakers helped themselves by slowing production in recent years after building too many cars between 2000 and 2009, said Eric Lyman, vice president at ALG, a consultant to the auto industry. Average transaction prices for vehicles have since climbed above $31,000 from $28,050 in 2008, according to Edmunds.com.
For other industries, it's going to take faster overall growth before things improve. Some economists expect the economy to gain momentum in second half of the year and in 2014.
But it will take time for hiring to catch up and even longer for the type of wage gains seen in the boom years of the late 1990s. In 1997, average weekly earnings were rising by as much as 3.7% year-on-year; in April, the equivalent was 0.9%.
"People have adapted to a different way of buying things and different types of products," said Axson. "It's going to be very interesting these next two or three years to see if companies can convince consumers to open their wallets a little wider."