On January 5, 2021, we published a blog entitled “What Lies Ahead for the POP Display Industry for 2021.” At that time the world was gripped by a fiercely stubborn global pandemic that had grinded international economies to a halt. Mankind pinned its hopes for returning to life as we once knew it on a set of unproven vaccines. After being blindsided by an unrelenting virus and facing a future that was anything but certain, we openly acknowledged the foolishness of attempting to make predictions. We then proceeded to make the following prediction: “POP displays will be more expensive in 2021 as a result of inflationary pressure related to materials, labor, transportation, and currency fluctuations in the industry.”
As inflation continues to surge, POP display costs are rising rapidly. Here are 4 practical cost-cutting strategies for beating POP display inflation.
It all seems very obvious now. If anything, we understated the inflationary impact that we are all now feeling, much of which was deeply routed in the key areas we cited. Rising consumer spending, pent-up demand, supply-chain interruptions, and trillions of dollars of government spending have fueled the inflationary fire. Lumber prices have increased by a whopping 377% over the last year, while futures markets suggest an increase of 50% in industrial metal prices in 2021. Meanwhile ocean freight rates have nearly quadrupled since this time last year. Many economists claim the uptick in inflation is temporary. We disagree. While we expect material prices and transportation costs may ease as supply catches up to demand over the next 1-2 years, we believe wage inflation is irreversible. Higher wages and reckless government spending are likely to drive systemic inflation over the foreseeable future. We also expect tariffs to continue into the planning horizon as it is unlikely that the U.S. and Chinese governments will kiss and make up any time soon.
As inflation continues to surge, POP display costs are rising rapidly. Here are 4 practical cost-cutting strategies for beating POP display inflation.
- Knock it Down and Keep it Small– Whether you are having your displays manufactured overseas or domestically, one of the smartest things you can do in an environment where ocean freight and domestic trucking costs are at all-time highs, is make sure your displays are designed to be knock-down. Fully welded and fully assembled displays will soon be on the endangered species list if transportation costs continue to increase. As long as your display can be assembled at the store in less than 15-20 minutes and if you provide clear assembly instructions with tools for assembly, a knock-down display will be acceptable to most retailers.
It’s always advisable to keep your display footprint small, but the advantage of keeping your display small from a transportation and materials usage standpoint is significant in today’s environment. This does not mean you need to compromise on the number of SKUs you are merchandising on your display, but it may mean the display will need to be refilled more frequently since if you reduce its holding capacity.
- Increase Quantities– Consider ordering higher quantities of displays with reduced reorder frequency. Most POP display companies provide price breaks for increased quantities. They do this because at higher quantities there are real production efficiencies and economies of scale in material purchasing and manufacturing. Most companies are willing to pass on these savings or at least a portion of the savings to their customers in the form of quantity discounts. Higher quantities afford manufacturers the opportunity to spread design, engineering, and set-up costs over a greater number of units, thereby lowering the per unit cost.
Pursuing a higher quantity ordering strategy makes particular sense when the cost of borrowing is low as it is now. Lower borrowing costs mean lower inventory carrying costs. Make sure you are not overbuying at a quantity level you will not be able to use in a reasonable timeframe such as 12-24 months. In addition to financing the inventory, you will also need to factor in the cost of storing the inventory. If you have unused storage space then your marginal storage cost is effectively zero. As a general rule of thumb, make sure the quantity discount is greater than your combined financing and storage cost to ensure it is economically advantageous to increase your purchase quantities.
- Plan Ahead and Start Early– Don’t wait to the last minute and expect to get great pricing from your POP display manufacturer. Rather, order as early as possible to enable your supplier to build your production run into their schedule and avoid overtime and rush charges. The more lead time you provide your display supplier the more opportunity they will have to source materials cost effectively and plan efficiently.
The sooner you can get your display in stores, the more money you will make. The highest impact and most important thing you can do to overcome POP display inflation is to accelerate the time it takes you to get your displays in stores. Why? It has to do with something we call “the economics of delay.” If you have never looked into this powerful economic truth, we suggest you check out our blog that explains it. It’s called “Point of Purchase Displays: How to Get Them for Free.”
- Focus on Extending the Life of your POP Display– Our final cost-cutting technique is to focus on extending the life of your display. This will enable you to amortize the cost of your display over a longer period of time and a greater amount of sales. You can do this in several ways:
● Build it to Last– Make sure your display is built with high quality, durable materials that can withstand an abusive retail environment for years.
● Design it for Versatility– A versatile display is one that can be easily adapted to changes in product mix, new packaging, and planogram updates. The more versatile your display, the longer it will stand the test of time.
● Permanently Brand It– Permanently branding your display will reduce the likelihood that the retailer or another brand will hijack your display and use it to merchandise their own products.
● Make it Easy to Refresh– Make sure your display is designed to be easily refreshed by replacing signs or changing out accessories. Keeping your display looking fresh will help your display avoid a premature death.
● Negotiate a Long-Term Commitment with the Retailer– Try to secure a long-term commitment from the retailer for your display program. Willing retailers are likely to tie these types of commitments to sales performance, but the longer you can extend the time your display is in stores, the greater the return on your display investment.
While there may be a number of other tactics you can pursue to combat POP display inflation, executing these 4 cost-cutting strategies and techniques is likely to produce tangible results in the face of persistent inflation.