Why Empty Shelves are a Bad Thing (As if you didn't already know!)

Maybe you've heard Jen Psaki try to spin the supply chain crisis as no big thing. "Your new treadmill will be a week late." But it's more than tardy treadmills, Jen! From the Twitter:

I can’t get a compressor for my coolers. I’ve been waiting 6 months. Can’t sell food if I can’t fix coolers.

First, in general, what's the big deal?

Well, there's an opportunity loss involved. The producers, processors, and manufacturers lose the opportunity for you to see and purchase their goods. If they're not making money, they may be forced to lay off, at least temporarily, personnel. 

The products you don't see on those shelves are not going into your home to nourish your family or make your life more pleasant, at a reasonable cost. Empty shelves hurt you. 

The producers, processors, and manufacturers aren't making a profit. Apart from possible layoffs, part of the gross profit from those goods is often invested in their next order to replenish their stock, or to have the goods ordered and in the supply chain for their next sale.

The local grocer or vendor is not exempt from the pain. They're paying rent for every square foot  of that building, and turning a profit rellies on having that square footage occupied. I once sat in on a meeting between a grocery store manager and a sales rep for a food line. 

They were haggling about how much the product cost, and where it would be displayed in the store. The end caps of each aisle were premium territory. You pass them by even if you don't go down that particular aisle. They went back and forth over what kind of incentives the sales rep could offer for prime placement and what kind of guarantees he could get in return. 

Other retailers told me about the "turn". If they allocate a square foot of space to a product, how many times would it "turn" during a year? That is to say, how many times would it sell? That's why nearly every store that sells shoes has a heavy inventory of sizes 8-12 and maybe 13, but few 6-7 and usually no 14-15. Why. Do shoe stores hate people with small feet? Large feet? No, those sizes don't turn fast enough. They can make a larger profit on products that sell faster. 

Try to find 36" inseam jeans at your local clothing store. Do they hate tall men? No, there's just a lot more guys who are 5'10" than those who are 6'4"! They make more money on the turn.

Now ask yourself a very simple question: How many times does an item "turn" on an empty shelf?

Zero. 

How about tomorrow? 

Zero.

Day after?

Zero.

You're picking up a pattern here, I see! Conventional grocery stores have a profit margin of about 2.2%. How many empty shelves do you need to erode a 2.2% profit margin? How might you compensate, in order to keep the doors open? Raise the prices on the goods you DO have! We've been seeing a lot of that.

But what if your customers refuse to pay the higher prices, either because they object to higher prices or cannot afford them? You either raise your prices again, hoping that you will retain enough customers paying higher prices or you look to things like laying off personnel, cutting down on the number of hours you're open to minimize personnel costs. Reduce the number of full time employees so that you can reduce benefit costs. Not things that you want to contemplate if you want to encourage loyaty from long term employees.

But, it's just like ordering a treadmill and getting it a week later than you expected...right?

We're seeing the empty grocery shelves. What we're not seeing is the manufacturer, like the fellow above, who needed compressors to process his food orders. The factory that make the decision to source a part of the product overseas, that cannot continue production or ship product until they get the parts. A amanufacturer who cannot ship product will lay people off. 

Every day that the shelves remain empty (or grow emptier) brings the spectre of unemployment closer to more and more people. 

I wish I had some words of encouragement other than "hunker down". We are living in an age where the government seems to be accelerating the ship of state towards the iceberg. God help us all.