Zachary Beeck: Kind of I know you also mentioned rolling back pricing. Can you share any color on maybe the magnitude of those rollbacks, are you guys seeing any others in the marketplace start to change their pricing as well? And then how elastic do you think demand typically is for the category, do you guys expect maybe to see a rebound in units from taking prices down this year?
Greg Trepp: So Zach, on this front, it’s always a little hard to know how it’s going to play out. A few things to point out. One is product costs are — have come down. And as you know, I’m sure transportation costs have come down significantly. So what we’ve always tried to do is whether costs are going up or down, work closely with our retail customers to just stay whole when it comes to those cost changes. So as they’ve come down, we’ve proactively worked with retailers to price our products to be sure we’re competitive, protect our margins, but also try to be sure that we’re putting pricing out there that’s going to excite customers to purchase more. So as we went into last year and we had to raise prices, it was very difficult to know whether that would drive top line and units would hold or whether consumers would just trade up and down, and it really wouldn’t impact sell through or hurt sell through.
It turns out the market was a little softer. And so clearly, the price increases that we took and everybody took did not — were not additive to the marketplace. The consumer just changed their purchase — happens to buy different products and the market is still softer than expected. So as we go into 2023, as we reduce prices, there’s a couple of things that we’ll have to figure out. So in the short term, month-to-month, we’re going to be dropping our invoices to retailers and that will flow through their on hands. So there could be some short term ups and downs on our performance as we pass along those price decreases. It is hard to know whether the consumers will continue to purchase the same way they were. So therefore, those lower prices will actually hurt our performance ongoing.
Early on we’re seeing some response by consumers that when we reduce prices, the units are picking up and they’re responding favorably to those. So our general set of thought is that just like when prices went up, it was not all additive that when prices go down, it will not decrease from our performance that consumers will move around their purchase desires, and it will be a modest change up or down, that’s a big assumption. But right now, we’re seeing that consumers — as prices come down, consumers are responding to those products that are now at lower prices. Competitively, everyone is buying from the same part of the world for the most part. Everyone is experiencing lower transportation costs. The retailers are very good at demanding competitive prices.
So I’m not 100% sure of where all our peers are. But my sense is that sooner or later they’re all going to be either with us or following suit, because the marketplace is going to drive all of us to be competitive on pricing.
Zachary Beeck: Shifting over to margins. What gives you guys the confidence that gross margin pressure in the fourth quarter related to those promotions will be short lived? You mentioned anticipating a return to a more normal gross margin level in the first half. Is that view based on trends you guys are seeing so far in the first quarter?
