Inflation - Everyone's Favourite Subject

[Jamie @ Sovereign Hobbies]

https://www.sovereignhobbies.co.uk/blogs/news/effects-of-inflation-everyones-favourite-subject

 

 

We definitely didn't appreciate the effects of geopolitical and socio-economic events on running a small business back in 2014 when we jumped into this head-first.

As our longer-term valued customers will hopefully recall, we tried to maintain the legacy retail pricing from the White Ensign Models days, but after absorbing numerous incremental cost increases from all directions of our supply chain, we were ultimately forced to increase our pricing last year.

 

Sadly, we're forced into a difficult position again. Customers may have noticed lots of products still out of stock. This isn't because we haven't been busy, but to try to service the domestic market and our international stockists' needs we've been producing much larger batches of the colours in strongest demand. We've still been producing thousands of tins of paint but the inventories of any given colour can tolerate a trade-raid or two now, whereas previously a USA trade order could (but not always) wipe us out of stock of a freshly made batch of a given colour. We still order - and fill - thousands of tinlets from the only European manufacturer every couple of months.

Whilst oil prices continue to drive up costs of our base ingredients, we're mostly struggling with containers to put paint in. The latest invoice for 3000 tins is 50% more expensive than this time last year. In addition, thanks to Brexit we now need to pay VAT on the imports. Yes, it's deductible on the VAT return, but VAT is processed every 3 months and we are deprived of liquid cash to operate on in the mean time. Cash flow is key when running almost any business.

 

Some of you may have noticed and / or participated in a survey recently to ask your feelings about alternative containers. We appreciate your time, even those of you who told us you'd like the paint inside the container to be someone else's too, but ultimately the results were a fairly even spread of preferences and there isn't an alternative container available at prices which would allow us to hold our selling price without hurting sales. Had the results been strongly in favour of one type and style over another we would have made the change, but the data didn't show that.

Changing to glass jars (whether short and stout or tall and narrow) wouldn't have pleased everyone, and it's highly doubtful that change would have generated more sales. Furthermore, glass jars are significantly larger and heavier for a given internal volume than steel tinlets so this would have seriously impacted our international stockists on shipping volumetric weights, who would then have had to increase retail pricing (and tied up more cash in the mean time) accordingly. At home in the UK, this would have meant mixed inventories and a requirement for much, much more storage space for the inventories, as well as likely confusion and much more correspondence to deal with about whether a certain colour was coming in one container type or another. We honestly don't mind hearing from customers, but ultimately replying to emails doesn't package orders, fill up paint containers and it certainly doesn't pay bills!

 

In conclusion, we are going to stick with 14ml tinlets for the time being, but we are unable to absorb the latest price hike from the manufacturer. We understand the increase is because of the commodity price of steel going through the roof worldwide - something neither of us has any control over in the grand scheme of things. We are anxious about being accused of profiteering though, so we intend to hold the retail pricing on existing stock as-is. It's replacement that is more expensive now so only replacement batches will be subject to another price increase. The cash-flow aspect of paying a lot more to make the stuff then having to wait to sell it is a reality we have to work with, so this likely means that production must be throttled back a bit to allow sales of existing inventory to finance the increased cost of replacement inventory.

The increase will be £0.25 per 14ml tinlet.

[iang]

Thanks for taking the time to explain, Jamie.  

[malpaso]

Useful article but did you mean increase of £0.25 (25p)?

[Jamie @ Sovereign Hobbies]

1 hour ago, malpaso said:

Useful article but did you mean increase of £0.25 (25p)?

 

Yes! I had this proof read as well. Still the mistake originates with me!