As we approach the halfway mark of 2021 we are experiencing huge shipping transportation problems, and a seemingly unprecedented disruption to the supply chain. Dollar stores and discount stores require a steady flow of inexpensive imports to stock their shelves, but inventory is in short supply. Here are some reasons prices are going up and what may happen.
1. Covid. Yes, it seems to be part of the blame for anything and everything that went wrong over the past 18 months, but in this case Covid definitely played a part. As more and more employees around the world either missed work days due to Covid or were fired from their jobs, there were fewer people working at the docks, at ports, loading shipping containers, unloading containers, and delivering trucks. This affected the supply chain and stores are not properly stocked with inventory and are having to pay more to get goods. For retailers that buy overstock and sell excess inventory and liquidation items, this is a challenge. As an example, retail companies like Dollar Tree, Ross Stores and TJ Maxx search out liquidation stock for sale as an alternate way to fill their shelves. Imports have been severely disrupted so liquidation items will have more appeal until things settle down a bit.
2. Import Containers. The cost of import containers has increased 5X since the beginning of the year. There is a normal “peak season” for goods coming in from China when costs typically double, but what’s happening now is unprecedented. For liquidation companies that buy overstock and sell excess inventory, these costs can become prohibitive and put operations out of business. Liquidation stock for sale often only costs a small percentage of the original value, so when the cost of shipping quadruples it could easily match the value of the entire contents of the container. There is no end in sight to increases in shipping costs and the only way prices will begin to drop is if demand falls.
3. Consumer Demand. Consumers are ready and willing to part with their money. Having spent the last year + at home and not traveling, American’s are wound up like a tight rubber band just waiting for the green light to take their vacations, visit theme parts and get out and start enjoying Summer. In April, the National savings rate hit a record 32%, so clearly there is pent up demand. Dollar stores have been super busy as consumers continue spending, but with costs increasing it is questionable how long they will be able to maintain their $1.00 price point. Other off-price retailers like Ross, Dollar General and Ross have more flexibility because they carry all price points. They sell excess inventory and liquidation items ranging from apparel to housewares and furniture with retail price points exceeding $100.00.
There is no way to know how things will end, but one thing for sure is costs are increasing. It is becoming more and more difficult for dollar stores to maintain their $0.99 or $1.00 price point. They can make a shift to buy overstock and closeouts instead of regular imports, but this can take time and they may not uncover enough excess inventory to fill their stores. And even if they can find enough liquidation stock for sale, it may also be inventory currently located overseas so they will be faced with the same transportation dilemma they already have.
The most likely outcome is a move away from the famous $1.00 retail price point. Consumers may not like it very much but all retail stores are on a level playing field so there is little competitive advantage to the cost issues we are currently facing. There will always be distributors and importers that need to sell excess inventory located right here in a U.S. warehouse, but it won’t be enough product on a regular basis to help satisfy the needs of retail giants with 1,000 plus stores.