Hello Everyone, price increases are coming in 2019. This will affect everyone, manufactures, wholesalers, us as retailers and you as the consumer. There are a lot of factors that go into rising costs. Typically each year the cost of business will go up by at least 3% to match inflation. This year there are other factors such as tariffs and the job market/minimum wage.
For the last 8 months or so we've offered a rewards program as we wanted to help build loyalty with our customer base. It was essentially a 5% rewards system. Every $100 you spent you'd earn $5 in rewards. The system has its flaws like the fact that only one discount code can be entered during check out, which means you were forced to choose between a percentage off discount code, a redemption of an item, or $off offer. The next problem was that not many people even used their rewards, we realize part of it is due to the first problem. On the back end it is a nightmare as we have to fix points for several people a day who check out with incorrect or different email addresses or a different name, just to give a few examples. Certainly all an unforeseen consequence of the system.
We have decided to end the rewards program Feb 1st 2019. 2 weeks before this we will stop the earning of points. This gives everyone over 30 days to accrue any last minute points to get to a next reward level, and redeem the balance of their points.
This 5% we recoup from a underutilized system can help offset some of the price increases in 2019
Another cost that we haven't implemented yet, was been wage increases. in 2019 minimum wage in Washington state goes to $12 an hour. While our employees make more than this, it does raise the bar for people who supply us fish and other products. Thus we'll see a price increase. Also this year in 2018 we had a paid leave act go into effect which meant essentially that every employees gets 6 paid sick leave days. Previously as a small business we didn't have paid days off. This year we increased it from 0 to 12 paid days, We pay for Christmas and Thanksgiving, the minimum 6 paid days of sick leave, plus an additional 4 days PTO.
My plan to absorb these costs was to buy some more products directly from manufacturers, things like sponge filters, rocks, wood etc. We are still doing this, and there are some savings still, but tariffs have gobbled up most of the savings we were having. On the last batch of sponges we brought in, the tariff was 25%. I know a lot of people point out there is currently an understanding to not raise tariffs for the next 3 months. This is true, on the tariffs that are currently at 10% such as LED lights. However there are tariffs already at 25%, which aren't going back down either for the time being.
We have recently looked at other countries to import from as well. Ziss Aqua, is based out of South Korea. There are currently no tariffs there and perhaps we can find some other products to buy there to help offset these price increases.
A common question we get asked is, why don't you just have these products made in the USA? The short answer is, we have tried. We tried 3 manufacturers of foam/sponge. None of them can produce a sponge filter without a hole in the end of it. Some are buying their foam from other countries and just want to cut/drill it to specification. Some product it in raw sheets but want nothing to do with it afterwards. There is a USA based sponge filter company for sale. We have contacted them to get financial information and investigate further. However lets step back a second here, we can't buy a company to produce every product we want to sell here in the USA. This just happens to be a "maybe this would work out" scenario.
So what are we doing to prevent price increases? We are trimming the fat anywhere we can. One of the first steps was hiring Randy Reed. Our new Director of Operations. He comes with a background of supply chain management and inventory control. His job is to assist me in making sure everything behind the scenes operates smoothly and ensure we are positioned to continue growing as an a online and brick-and-mortar business. This includes meeting with vendors trying to broker deals, crunching numbers etc.
The next thing we did was remove the bottom 20% of products from our offerings. Our warehouse is bursting at the seams, we could use more space. By removing products that are slow movers this gives us a bit of breathing room to move to the next phase.
Next we have meetings with manufacturers, sales reps, suppliers etc and ask what it takes to get a better rate. Some things we are doing currently is buying in much larger volume on fewer products. We've always done this but we've taken it to the next level. It's very difficult to negotiate when a price increase is coming, we want it cheaper than we pay right now, and they are saying 8-10% price increases are coming in less than 30 days. We also offer to pay in cash or check if it'll get us more of a discount. For a few vendors we are even physically picking up items from, we invested in a cargo truck to accomplish this.
Then we invested in more equipment, things like $1000 tape machines. These allow packers to be a little bit more efficient while packing, thus offsetting some of the "packing cost" for our online orders. Usually it's about now, where someone chimes in and says "replacing people with machines!" Rest assured we aren't doing that, we are merely upgrading from a tape dispenser that you used by hand to an automatic one. This saves a bit of time, and physical repetitions on the employees.
Now we are looking at shipping. How can we save money in a world where everyone expects free shipping, and for $2 to have it same day or next day? As you may have seen in a post on Youtube. The postal systems we have in the USA are overwhelmed. We are meeting with different companies but we are getting pretty much the same response from all of them. There aren't discounts coming, there are price increases coming. Currently USPS has the best rates for priority shipping 2-3 day packages which all of our live plants require. Across the board in 2019 prices for shipping between carriers is going up another 10%.
There aren't a lot of options on the table to mitigate shipping costs. We were quoted to need to move 60,000 packages a month to get a price break from USPS. We currently move 6-8,000 packages a month. We have done is invested in 96 hour heat packs. Yes this costs us more money, but with an overburdened shipping system, it is likely that a package will take an extra day to arrive in snowy conditions etc. This averaged out between all shipments should save us a tiny bit and provide a better experience for you the customer.
We are also paying a custom developer to write software that will pull weather forcasting data the destination of the package and make recommendations for whether it needs a heat pack, or a heat pack and a styro liner. This saves the packers time, who are doing this by hand currently. Long term, this will lead to a slightly reduced packing cost using this custom built API tie in.
To sum it up, our cost prices are going up as much as 35% compared to last year at this time, with a 25% tariff, 10% shipping increase. This doesn't account for inflation and raises etc for employees.
For one last comment that gets brought up. "Doesn't youtube pay you to do this?" Yes youtube generates roughly $9,000 a month. For perspective employee payroll, taxes, retirement accounts etc is $40,000 a month. As you can see, while it is nice, it is a drop in the bucket especially in the face of these increases.
I bring this information to you our customers so that you can see we are transparent and are actively trying to maintain a fair business relationship with you. This doesn't mean I am striving for the lowest possible price ever. I'm looking to strike a balance between price, customer service, and a livable wage for those who make the Aquarium Co-Op happen. My job as the owner is to walk this line carefully so no one is feeling taken advantage of.
Real talk, I foresee our prices having to increase on some products as much as 20%. There are products that are not affected much and their pricing will remain the same. We are holding out any increases for as long as we can until we can assess whether they are truly needed for us to remain in business.