Rising costs for petroleum and other materials are menacing the pipeline of inexpensive general merchandise product from the Far East.

While all departments in the store have been impacted by rising energy costs — making shipping more expensive and causing customers to watch their spending — general merchandise categories face a special set of challenges.

Much GM is made in China, where costs are rising along with the standard of living, and resources — like electricity — are sometimes in short supply. Meanwhile, the shipping distance is far greater than with domestically manufactured foods, and the use of petroleum-based packaging is widespread for GM goods.

Costs of other commodities used in product manufacturing, like steel and copper, also are rising in East Asia, retailers and wholesalers told SN during a recent conference of the Global Market Development Center, Colorado Springs.

“We have seen price increases on steel products three times this past year,” said Mike Juergensmeyer, group vice president, GM and pharmacy, Schnuck Markets, St. Louis. “So it's not just petroleum products, it's all commodities that are driving up the costs of import goods.”

This generally means higher prices that must be passed along to consumers. Although many chains have already done their purchasing for 2007, they are braced for tougher terms for 2008.

“I fully anticipate that we'll see some healthy cost increases based on materials and ocean freight for '08 season,” said Mike Isom, director of GM, Bashas', Chandler, Ariz. “But we're holding out hope that we won't and obviously it will be a strong negotiating point.”

Bi-Lo, Greenville, S.C., has locked in its programs and costs for 2007 and is looking ahead to 2008, said Anthea Jones, vice president, nonfoods and pharmacy. “Going forward, as we source our programs for '08 and beyond, I think [cost increases] will definitely have some impact and we're just going to have to get smarter about what we do, be more efficient and look for better ways to get the product to the consumer,” he said.

On the other hand, these trends may lead to smaller package sizes that could take up less space in shipping containers and on shelves, and buyers have started to look for sources in countries other than China. According to recent news reports, Wal-Mart Stores, Bentonville, Ark., is making significant cuts in its purchases from China.

Some even speculated that this could lead to more U.S. manufacturing.