‘Those days are over’: These business owners say they can’t raise prices even if they wanted to

By David Goldman, CNN

(CNN) — Looking out his shop window, across the street, just to the right, Paloma Clothing co-owner Mike Roach sees one of Portland, Oregon’s, most expensive gas stations.

His customers can see the price, too: $4.85 a gallon.

“It’ll really get people’s eyeballs popping when it goes over $5,” Roach said.

Consumers are fed up, and raising prices is a nonstarter for America’s retailers. So, they’re doing everything they can to avoid it.

CNN spoke to four business owners – a clothing store owner, a bread baker, a spot shipper and a factory owner – about how they plan to deal with surging fuel costs.

The clothing store with the loyal customer base

“We don’t have control over consumers’ confidence; we only have control over the price we sell to them,” said Roach, who has owned Paloma with his wife, Kim Osgood, for 50 years. “So, we’d prefer to make less money per item than to raise prices.”

Roach expects to get hit with higher fuel surcharges any day now. He plans to eat those increases, carving out those rising transportation costs from his profit margin.

About half the clothing Paloma sells is imported, brought in from ports on the east or west coasts and then brought up the coastline or cross-country in a UPS truck. Typically, those shipping costs represent a modest expense, taken out of Roach’s keystone markup – a common retail strategy in which wholesale prices are doubled at the register and a store’s overhead comes out of the difference.

But if this gas price shock is anything like the 2022 price spike, when diesel surged to a record $5.82 a gallon after Russia invaded Ukraine, Roach said he expects fuel surcharges to take a big bite soon.

That’s not a cost he’s willing to add to his price tags. Much more than his profit margin, Roach fears what the gas price spike will do to his top-line sales.

“Customers have to have a certain level of confidence about the future to walk in our door and tempt themselves and buy an item,” he said. “I was an economics major, but you don’t need an economics degree to know you’ll sell less stuff at higher prices.”

Paloma has spent five decades trying to build trust with customers – including a longstanding offer of a no-questions-asked guarantee on returns. But foot traffic is down and return volume is way up.

That’s how he knows his customers have no cushion left.

“We’re going to bend over backwards to not raise our prices,” Roach said.

The bread bakery that sits in the middle

If stores aren’t willing to raise prices, that puts wholesalers in a bind.

“There was a time when grocery stores accepted price changes, but those days are over,” said Nels Leader, CEO of organic sourdough bread company Bread Alone Bakery. “There is no room left.”

That has left small businesses like Bread Alone stuck with a handful of bad choices: eat the cost, charge retailers more or make cutbacks.

Wholesalers and manufacturers sit in a particularly difficult position, because they get hit on both ends: raw materials cost more on their way in, and finished items cost more on their way out.

If diesel prices remain high, Leader expects he’ll have to charge grocery stores a temporary delivery surcharge that Bread Alone will lift when conditions allow.

Strong relationships with customers and suppliers can help businesses through difficult moments like this price spike.

Bread Alone has developed strong relationships with local farmers and built up a regional supply chain that helped insulate it from rising transportation costs during price spikes. But that strategy comes with challenges: more expensive ingredients that limit what products can be made profitably.

“In moments like this, the work pays off,” Leader says.

Consumers can benefit from a similar strategy, he says.

“Local is more stable than global, and we don’t need oil to grow organic food.”

The factory with no options left

Shirley Modlin was in meetings all day Thursday searching for costs to cut. Her small manufacturing facility in Powhatan, Virginia, relies on carbide tools made of tungsten to make precise cuts.

But tungsten prices are particularly volatile during wartime – it’s used in armor-piercing artillery. So carbide tool prices have more than doubled in the past two weeks, Modlin says.

There’s nothing Modlin can do about it.

“My customers won’t tolerate me increasing my prices that would let me cover the increase of our tooling costs,” said Modlin, the owner of 3D Design and Manufacturing. “The customers don’t understand; they want this product. They say: ‘If you can’t give it to us, we’ll find someone else.’”

“Now, with gas prices going up, it’s costing me more, eating away at my profit, and it’s making it very, very difficult for me to sustain,” she added.

Modlin offers her staff competitive benefits and raises every year to retain and attract new workers. But last year, tariffs rocked the US manufacturing industry, sending the costs of imported raw materials surging – Modlin’s aluminum and steel costs jumped 65%.

She wasn’t able to give any raises last year. And on Thursday, facing another round of surging costs, Modlin had to cut an administrator back from full-time to part-time without benefits.

“He’s got a house payment; he’s got bills he’s gotta pay. It’s just awful,” Modlin said. “We have to do something. You can only cut so many breakroom supplies.”

The spot shipper who can’t set prices

Strong Pact Trucking transports goods that shipping companies dole out to him them– effectively taking over pre-existing contracts on an ad-hoc basis.

But because fuel surcharges are a separate line item on shippers’ contracts with the businesses they deliver to, owner Kareem Miller doesn’t see any of that added revenue for his Chicago-based spot carrier company. That means he’s not getting any compensation for rising diesel prices.

“You have to do the math and see if it makes sense,” Miller said. “Sometimes you just have to park the truck until things get better.”

That puts his workers in a difficult spot, he said.

“We make good money, but the problem is the fuel,” he acknowledged. “That’s why a lot of spot carriers don’t last.”

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