Retailers Fight Back After Costs Rise

If you're like most consumers searching for the lowest prices when shopping, you need to know retailers have some tricks up their sleeve for fighting back against their own rising costs.

It's no secret prices keep rising. According to Consensus Economics, publisher of Consensus Forecasts USA, inflation and overall prices will rise a modest 2% in 2012, but income will not rise accordingly. Gas prices are expected to rise, and we can all personally attest to food price hikes. Even the U.S. Postal Service raised its rates in January, and it might do so again soon. Prices for branded goods in high demand such as Levi's jeans and Nike sneakers already rose 5% to 15% during 2011 and will rise another 5% to 10% before 2012 is over, according to retail analysts.

Be warned, say consumer experts and retail industry insiders alike, because the best price is not all you have to look out for when trying to get the most for your money.

Low Prices Don't Go With High Quality

Manufacturers for items from bedding to boots have been sweating price hikes in cotton, leather and other textiles. And, the costs of doing business in China, from sewing to shipping, have increased as well.

"It's a dirty little secret in the retail industry: To avoid retail price increases, retailers and manufacturers 'value-engineer' a product to reduce its cost by purposely taking the quality out of products to make that price point a reality for you, the consumer," says James Dion, president of Dionco, a Chicago-based retail consulting firm. "You will see this with smaller brands and private-label products at discount merchants and off-price retailers where the prices seem to actually get lower."

"Prices for popular name-brand footwear (think UGG and Nike) are still increasing 5% to 7% more this year with the quality and workmanship what you'd expect," says Mike Featherston, president and CEO of ICB International, a footwear development and resourcing company. "Not every manufacturer or retailer has cut corners, but be very careful at evaluating low-cost, no-name merchandise."

Retailers Take Advantage of Focus on Price

Consumers often set a price in their mind to pay for an item, says James Dion, president of Dionco, a Chicago-based retail consulting firm.

"If your eye is on the lowest price when shopping for footwear, apparel or household goods, you can make serious spending mistakes this year," Dion says. "You will overlook smaller packages, (fewer) items in a set and inferior goods that simply won't last or wear as well."

It's a trend that can be tracked, according to Britt Beemer, who found similar results in his 2011 Consumer Track Back-To-School Shopping Survey.

"We found that a troubling 56% of people don't notice how an item is made and base their decision solely on price," Beemer says.

"It's very dangerous to be set on a price alone when shopping. Items of high quality may cost more than you dreamed, but you have to remember that one great, high-quality item replaces many mediocre items," says Vicky Oliver, author of "The Millionaire's Handbook."

Outlet Stores are No Bargain

You might think outlet stores and off-price shopping is the way to get the better goods for a cheaper price. "But manufacturers and retailers have figured out it's actually cheaper to just make lower-quality merchandise specifically for these stores (think outlet malls, Marshall's and Ross), and that's 90% of what you'll find there," says Vicky Oliver, author of "The Millionaire's Handbook."

"That Coach handbag at the outlet is not the same one sold in a department store," Oliver says. "It's a completely different caliber of an item. Its full-price cousin is sturdier, has superior stitching and softer leather. The outlet merchandise is less costly, but lower in quality, too. And if it is the real thing, the only reason it's there is because people with money didn't like it enough to buy it."

Oliver suggests spending time in the upscale department stores to train your eye and hand in the look and feel of the higher-quality designer items. "Try them on, and notice the drape and superior fit. Examine seams, pockets and buttons in the light so you can recognize high-quality versus low-quality when you are shopping on a budget," she says.

All Bedding and Bath Items Are Not the Same

"Consumers think any towel or sheet is as good as any other, and that's a costly mistake," explains James Dion, president of Dionco, a Chicago-based retail consulting firm. Two bedding and bath suppliers, who preferred to remain anonymous, gave the following advice for examining bedding and bath merchandise.

Towels: The standard bath sheet size is 35 by 60 inches, but bath sheets in stores today may be sized 30 by 54 and cost the same or less than their larger counterparts. Compare towels by size and feel first, then on price for comparable items.

Bedding: Pure-spun microfiber polyester is the cost-cutting bedding textile retailers from Wal-Mart to Bed Bath & Beyond turned to in 2011. A recent price check found that pure cotton 250 to 300 thread-count sheets cost double the same size microfiber. The thinner microfiber splits easily and does not breathe like cotton. Pure cotton thread counts now range from 100 to 1,000, with the lowest feeling like burlap. The main difference between the 600-count and 1,000-count is the exorbitant price. If the label doesn't specify, it is likely a cotton-polyester blend. And bedding sets may contain fewer items than you remember.

The Latest Trends Will Cost You More

"If you examine hot new trends such as colored skinny jeans, faux leather outerwear, handbags and apparel ... with zippers instead of buttons or laces or more fabric, you will see that these are all ways a manufacturer can cut costs," says Andrea Woroch, savings expert for Kinoli Inc., creator of CouponSherpa.com. "These small changes per item really add up to a lot of cost savings for the retailers. Plus, they are promoted to you as the hot, new thing and priced higher to boot."

Apparel suppliers say it's cheaper to dye a pair of jeans one solid color than it is to acid wash or treat denim many times to achieve a desired denim wash, and they use less fabric in a thinner grade of cotton to manufacture skinny jeans and most "jeggings," or leggings that resemble skin-tight jeans. Zippers are faster and cheaper to sew in than buttons and lace, and they can take the place of more expensive fabric or leather, too.

"Most low-priced, low-quality nonbranded or private-label clothing today will simply fall apart faster than its branded counterparts," says James Dion, president of Dionco, a Chicago-based retail consulting firm.

Beware of 'Designer Exclusives'

So what about brands such as Simply Vera, the Vera Wang brand sold only at Kohl's, or Jason Wu for Target? If you think it's the same designer merchandise sold at Bloomingdale's for four times more, then you need a reality check. "You're buying into the brand name, but you need to understand it's not the same," says Vicky Oliver, author of "The Millionaire's Handbook." "These designer 'exclusives,' as stores call them, are nothing more than cheaply made merchandise using that designer's name.

"They don't feel, look or fit the same as the real thing," she says. "Unless you have disposable income to spend on this stuff, you'd do better to save up your money and invest in just one classic, beautifully fitting piece of the real thing. Even the high-end department stores have sales and coupons, so get on the email lists and befriend the sales associate to find out (about) sales -- and spend your money then."

Don't settle for less in your shopping bag: Read labels and open loose products to check sizes. Evaluate fabric, fit and workmanship carefully to make sure you're getting the best your budget allows.