Rising sourcing costs, frozen prices: the margin trap in the retail

Revenue is up. The commercial team is running at full speed. Promotions go out on time, price lists get updated, every channel is covered. And yet gross margin is quietly retreating, quarter after quarter, barely visible in the operating dashboards. A slow bleed that standard metrics are not designed to catch in time.

The explanation is not found in the seller's P&L. It's found upstream: in what Italian retailers pay for every unit purchased abroad. Over the past decade, that cost has risen between 15% and 75% depending on the category. Consumer prices have not kept pace. The scissors are opening. And every commercial decision made without this awareness opens them a little wider.

This is the real problem in Italian retail today: not a single wrong promotion, not a price list revised too late. It is the accumulation of sub-optimal decisions made without a structural understanding of cost. Operational noise drowns out the strategic signal.

Looking only at revenue is misleading. Higher sales figures can conceal a gross margin percentage in free fall — if purchase costs are rising faster than the prices you can charge the consumer. In Italian non-food retail, that is precisely what has happened over the past decade.

Leather footwear: the cost per imported kilogram rose from $26 to $38 between 2015 and 2024 — a +45% increase. Sportwear and textile footwear: +49%. Smartphones and communication devices: the most extreme case, with a +75% increase at the 2023 peak, from $209 to $366 per kilogram.

The paradox is structural: the major electronics brands don't negotiate list prices with their distributors. Consumers expect this year's television to cost less than last year's. Those who resell third-party brands operate on fixed or shrinking margins while the cost of every unit purchased rises. The gap between sourcing and selling is not a temporary crisis. It is a structure.

In this context, the risk is not the single wrong decision. It is the accumulation of decisions that appear locally correct but that, in aggregate, accelerate margin erosion.

The commercial team launches a promotion to clear stock — rational. The buyer renews orders at the same terms — rational. Marketing increases media spend to sustain the top line — rational. But none of the three know that the unit cost for that category has risen 23% in two years, that the exchange rate has added a further 5–7% invisible in any price list, and that the real margin percentage has already shifted by ten points.

In 2022, when the euro hit parity with the dollar, retailers buying without currency hedging absorbed a hidden cost increase of 10–15% in just a few months. It didn't show up in supplier price lists. It didn't surface in internal reports. But it eroded margin with the same force as an explicit price hike. The Vedrai Observatory analysis estimates the exchange rate effect alone contributed 3–5 percentage points to the widening of the gap in categories most dependent on Asian suppliers.

• Build visibility on the real unit purchase cost. Not just the supplier list price, but the fully-loaded cost per unit accounting for duties, logistics, currency, and product mix. Many mid-market retailers discover their actual margins quarters later — when it's too late to act.
• Connect commercial decisions to upstream cost drivers. Pricing, promotions, media spend, and assortment choices are not independent decisions: they are levers of the same system. A promotional push that drives volume but compresses margin in a category already under pressure is not an operational win. It is an accelerant for the scissors gap.
• Treat currency risk as an operating cost. For any category with dependence on Asian suppliers, exposure to the dollar and yuan is a structural risk that can materialize in months. This is not a topic for large groups alone: it is an operational necessity for any business that buys goods priced in foreign currency.