Are Your Store Shelves Thinning?

February 3, 2016, by Ken Jorgustin

empty-shelves
(Whoops…)

Here’s a question for you, as well as something to consider going forward…

Are you noticing any of your grocery or retail shelves thinning out a little bit?

And can you imagine what might happen if and when the public at large notices such a thing?

Here’s what I’ve noticed, and here’s what I believe might happen if others start ‘panic buying’…


 

The BDI (Baltic Dry Index) Factor

This index is a broad measure of raw materials movement around the globe. It is based on the average price to ship these materials (such as coal, iron ore, cement and grains, etc..) on a number of shipping routes. The index is considered as a leading indicator (forward looking) of economic activity since it involves events taking place at the earlier stages of global commodity chains. When goods are not moving as much, it indicates an overall slow down in consumption and production.

And guess what? The BDI is very disturbingly low… in fact at all-time lows. As in, ever. The last time I checked as of this article’s post date, it was 310. Stunning… You’re not hearing much about that in the mainstream are you…

While the current record low BDI is not necessarily an indicator that shelves may ‘thin’, it does indicate the apparent and significant slowing of the ‘gears and cogs’ within the system. As people buy less, the retailers order less. As the retailers are ‘pinched’, they will take steps to compensate (see the next paragraph which does present scenario for thinning shelves).

 

Trimming Out Fringe Products For Profit Margin

I have indeed noticed this on a general and fairly wide scale… Retailers (in general) don’t seem to carry the shelf inventory they used to, especially when it comes to what might be considered ‘fringe’ type products. They have apparently (definitely?) focused on mostly and only the mainstream products that are consumed the most while discarding much of the rest.

It makes sense that to tweak profit margins even further, a business may entirely eliminate product lines which do not produce certain results. While the consumer may become irritated that they may no longer have the broadest selection, the business isn’t too concerned about that any more…

Additionally, it seems to me that even the ‘not so fringe’ products may become ‘axed’ upon further analysis by ‘bean counters’. Choices are diminishing as people buy less. And this will get even worse as we descend further into this depression.

 

The JIT (Just In Time) Systemic Risk Factor

Not only are there diminishing choices, but most all businesses today are operating on a just-in-time supply chain. Inventory comes in and is immediately put on the shelves until the next delivery. The ordering process is fine tuned such that the public’s normal consumption is coordinated with inventory orders – which comes in ‘just in time’ before the shelves get too empty. And so on…

The JIT process goes way beyond the store owner ordering additional inventory. There are MANY steps along the way – retailer – shipping – distributor – shipping – manufacturer – shipping – raw materials – shipping…

And there’s LOTS more in-between the basic steps listed above. Here’s the kicker… each of those steps (and the one’s not listed) are also (mostly) operating on JIT! Can you see any of the systemic risk yet?

Not only are retail inventory choices diminishing, but there is a long line of (JIT) risks going all the way back to the raw materials.

But let me ask you this… What do you think would happen if something major disrupts any or all of the JIT system, or if public at large begins to notice a lack of inventory to the extent that they actually ‘notice’?

 

Panic Buying Will Crash the JIT System

Think about it… If the entire supply chain (from retailer to manufacturer to raw materials supplier) is operating under JIT, then just imagine the damage to the system if the public at large begins a ‘run on the system’ so to speak.

The system is designed to function efficiently under ‘normal’ consumption demands. But when that demand is not properly forecast and ordered ‘back up the line’ in time for all of the integrated ‘lead times’, then suddenly you have shortages. And these shortages will become major implications to product delivery dates.

While on one hand you might consider that this can’t happen (major shortages) because if people are buying less (due to the ‘real’ economy) then the demands are less. However this is incorrect thinking…

Two things:

1. If there is an event or series of events that drive consumers to suddenly purchase more of something, then there will be immediate shortages.

2. If the consumers begin to notice shortages of something that they typically or regularly buy, then they will very likely buy MORE of it – because they’ve noticed that there’s not so much of it… This in turn will cause even greater demand (which has not been forecast into the JIT system), which further magnifies the problem. And so on…

When there finally is new inventory on the shelves, it will be scoffed up immediately for fear of more shortages. It keeps on happening this way for a LONG TIME (if it’s bad enough of a scare). Remember the .22 ammo shortages and how LONG that lasted (and still partially is)?

Now factor in the complicated weave of international sourcing. Remember, we don’t ‘make anything’ anymore…

 
In conclusion, I hope this presents some of the systemic risk that we are facing, especially now while all aspects of the system are strained and leveraged to the max – all the while we descend further into slow-down… Will we see shortages?

Look out below…