The Perfect Storm Is Brewing

What is your feeling on inflation over the next 12 months?

View Results

What is the first I thing I do everyday after I wake up? Check the weather forecast. I want to know if it will be sunny or rainy or perhaps a combination of both. Isn’t it amazing how sunny days are good mood days and rainy days are blah days? We are happiest when it is sunny, no wonder we love going to sunny places on vacation.

Unfortunately the way of the world is not sunny right now (actually it hasn’t been sunny since the start of COVID and lockdown March 12, 2020). Sure we have had sunny days, like after the vaccine was introduced (months of May and June were especially nice) but now the perfect storm is brewing.

In all my years in business, I have yet to witness this particular storm. In fact it could be we worse than Carter’s 20% inflation years in the 70’s because not only are we going to have inflation greater than 5%, we still have COVID and all the political tension (next year is the mid-term elections and already I have seen more Trump news in the past week than the past six months).

The perfect storm is the one no one sees coming. You look at the weather forecast and it says today is going to be sunny. Then suddenly in the afternoon, thunder and lightning come out of nowhere and you have to run for shelter. I hope that I am wrong, but we will all be running for shelter and the shit could hit the fan as early as winter 2022.

Let’s talk about inflation because that has to do with business and things that have to do with business are still “safe” to talk about, at least for now. Consumers are the last to know about cost increases taking place and for good reason: Companies have nothing to gain to tell consumers in advance about price increases because they know consumers will hoard goods and make matters worse.

Here is an example of what I am referring to. We have the #1 selling foil sheet on Amazon. Amazon has been selling our 5” 500-ct box for $8.39 since God knows when. That was before price tariffs of 25%, before the cost of aluminum hit a 15-year high and before the cost of a single shipping container went from $4500 to $25000. There are 23,500 foil boxes in a container. Figure the math. At $4500, that comes to about $.20 per box for freight. At $25,000, that comes to about $1.15 per box for freight. Then add $.75 for tariffs and then add $.65 for increased cost of aluminum and you can see the perfect storm. Our new selling price for the foil sheets will be $13.99 per box but we are going to offer a 12-ct case for only $9.99 a box and absorb a lot of the price increase…..for now. But what happens when costs go up even more? Our best-selling 9” foil sheet box just went to $19.99, up from $11.99 ($14.99 each when buying a case of 6). So much for inflation running at 5%.

The same situation is true for just about everything imported. We are now paying more freight than the cost of the product for items like hot towel warmers, pedi liners and other bulky products. I easily see prices going up 20-30% for imported goods. Unless you are Apple of course who can sell a tiny phone for $1300 and can put tens of thousands in a single container.

But the perfect storm cannot take place just because of imports. Domestic price increases are taking place at a record clip too as employment, delivery and raw material costs are soaring. I buy Prime filets at my local Nino’s. Last year I paid $29.99 lb. This year the price went to $34.99, then $39.99, then $44.99 and last week $54.99 lb. Even non-prime filets were $39.99 lb. No wonder the likes of Aldi and Costco are doing well, food prices are at the highest in more than 50 years.

However this is what makes this time period worse than the 1970’s: At least in the 1970’s, even with crazy inflation, you still could at least buy the goods you wanted. Today, not only do you have to pay higher costs, you can’t even get the items you want no matter the cost. Waits up to six months or longer for items like bikes, washing machines, cabinets, flooring and so much more are normal. A shipping container that used to take 4 weeks to get here from China now takes anywhere from 7-14 weeks. We are still waiting for goods that we ordered in March/April.

And here is the caveat to all this. We are sick of being out of stock (although we have the highest in-stock percentage compared to our competition) so we are ordering more. But that is the issue, most companies are ordering more too, which means more demand and more strain on the logistics industry (more than 30 ships stranded at the Long Beach port daily, railroads not taking new containers, truckers can’t find truck drivers, etc.). It also means more inventory and less turns for businesses along with lower margins. That is the perfect storm.

The all important holiday season is fast approaching. This will be the worst holiday season ever for selection of goods. Already toy manufacturers have warned buy now or be sorry.  December will be a key month and give us the best read on the market. With the Chinese New Year (Year of the Tiger) just around the corner in January, the peak of the perfect storm should take place. And then it’s only a matter of time to see what happens in its aftermath. Perhaps sunglasses will go on sale.

Happy Tuesday!