planning for the holidays

It can take a surprisingly long time for a retailer to go from a hazy concept of what a store (or a chain) should look like for the holiday sailing season to seeing the shelves actually stocked with merchandise.

Let’s skip over the planning time it takes to figure out exactly what items, and in what quantities, the retailer wants to buy and start with what happens once he calls up a manufacturer or wholesaler and places an order.

Let’s also, for the moment, not focus on computer and consumer electronics items.  There, the issues are making sure enough components and manufacturing capacity are available.  That’s what takes months (a complex semiconductor, for example, may take three months to fabricate).  Actually assembling and testing a device takes a day or two; day three gets it to the plane; on day five, the Fedex truck is rolling to deliver the item.  So  …a week, more or less from manufacturing order to warehouse.

timing order flow from China

For, say, garments from China the story is completely different.  Assuming manufacturing capacity is available, it may take a week to manufacture/assemble a large order and get it to a port.  Pencil in another day for loading, two weeks for a container ship to reach Long Beach, California.  Add a day or two (or three…) for unloading there, and the better part of a week for the train the shipment is placed on next to reach the East Coast  Then there’s a trip to a company warehouse, where the goods are parceled out into smaller lots for delivery to the back rooms of retail stores.

That all adds up to about two months for an isolated rush order that sails through the system without any problems.

But problem-free order flow won’t always (ever?) be the case.  Rush orders cost extra.  And you can’t have all the merchandise arriving at the retail stores on the same day–no one has enough trucks or doorways that are wide enough.  So three months is probably a better figure.

using the data

What does this mean if we want to monitor port activity as a way of assessing retail plans for the holiday season?

Figuring merchandise should be in the stores in early November, look for a pickup in port activity in the area around Hong Kong in late July or early August, and an uptick in the ports around Los Angeles–LA and Long Beach–in late August or early September.

…so far?

So far there’s no pickup to be seen.  Hong Kong-area ports are flattish, and the southern California ports were down 5% year on year in August.  Li & Fung, the well-known Hong Kong-based logistics company, indicates in its latest monthly Chinese Purchasing Managers Index report that new orders in China are perking up a bit in September.  But these seem to be for domestic consumption, not exports–and stuff being made right now can’t get to foreign markets before yearend anyway.

investment implications

Hong Kong figures are doubtless depressed by the current situation of the EU.  Also, to the degree that they can (not much), importers have been avoiding Long Beach for years because of the port’s stunning inefficiency.  Therefore, there may be some room for a contrary bet that the upcoming holiday season will be better than dreary port figures suggest.  WMT, M or KSS might be ways to participate.

I have no desire to do so, right now at least.

The pluses would be that the stocks are trading at low PEs, and that expectations are low.  But I don’t know that well the mid-to-lower-end merchandisers who would be beneficiaries of a surprising Christmas spending surge.  So I’m certain to be the dumb money in this trade.

For another thing, I think we’re in for a luxury goods and gadget-driven holiday–jewelry, smartphones, tablets, e-readers and stuff like that.  So, as an investor I’m more comfortable betting on a continuation of the current haves vs. have-nots trend than on its reversal.

But I will be keeping an eye on the ports over the next few weeks for new data that might change my mind.