Years ago, a friend of mine returned with her husband to Vietnam to visit her family and bring them financial help. As was the case in many emerging countries at that time, she was required to declare any items of value–dollars, jewelry, a laptop…–she had on arrival. There was a limit on the amount of cash that could be brought into the country. They would be checked on departure to ensure the non-money items weren’t left behind.
The relatives brought them right away to a moneychanger to convert the dollars into dong (Vietnamese citizens were not permitted to hold dollars). They then used the proceeds to buy a diesel generator and some gold jewelry and gold coins. The gold could be hidden easily, and, unlike a bank account, it was not subject to purchasing power losses from inflation that was running at 5%(?) a month. The family didn’t need the generator, but converting dong into just about any physical object preserved purchasing power better way better than currency.
That’s runaway inflation.
My family has had a cabin in rural Pennsylvania for many years. During the pandemic, I hauled an old kayak out of the basement and began paddling an hour or so a day when I was there. After a couple of months, I started thinking about upgrading to a sleeker model so I could go farther and faster. That’s when I found out about the kayak shortage that’s in its second year, and getting worse.
What’s behind this?
First, a distinction: the least expensive recreational and rental kayaks are made by molding plastic in big machines in large factories, many of those in China. Last year, the onset of the pandemic shut operations like this down (paddle-making firms, too), creating shortages around the world. Because factories have reopened, that shortage is long since over.
Touring kayaks are a different story. This is a cottage industry. Kayaks are made one by one, using relatively small machines to shape the tops and bottoms out of sheets of plastic that are then glued together. There’s still an acute shortage of these in the US.
I’m really talking about the second kind.
The makers of touring kayaks tend to be smaller, privately-held firms, not stock market-traded behemoths. In contrast to public companies whose goal is to achieve substantial year-on-year sales and profits growth, private companies tend to be more focused on stability–on having this year’s profits not be lower than last year’s and on keeping family, friends and long-time employees at work. A corollary of this is that private firms are loathe to spend the money and take the risk of expanding production capacity.
Growth in demand for sporting goods is, generally speaking, a function of population growth. In the case of the US, that’s one or two percent per year. (I haven’t been able to find kayak-specific statistics, but I haven’t looked that hard, either.) I think the shuttering of gyms, banning of indoor entertainment like movies and flight from cities have raised demand temporarily by at least 20%, or ten years worth of normal market expansion. If a kayak maker expands by an equivalent amount to take advantage of current high demand, it runs the risk of being saddled with excess capacity once people go back to work in offices and demand returns to normal.
More important, there’s a legitimate worry is that recent kayak buyers go back to work, realize they no longer have a lot of kayak time and begin to sell their close-to-mint-condition boats at a discount on E-bay or Craigslist. If so, this activity would depress next year’s kayak market, both in unit volume and in price. In other words, making more kayaks now, makers might actually make the kayak manufacturers poorer, not richer.
Better not to get too greedy. Enjoy the booming market while it lasts–kayaks flying off the shelves, no discounts, no end-of-season sales, no unsold merchandise returned, no risk of overextending the firm or suffering a sharp downturn in demand in 2022. Don’t raise prices, at least not by very much, only to have to reverse course next year and maybe get a publicity black eye in the process.
“Don’t make this Purell all over again” is probably what they’re thinking.
My general point is that for many products in current high demand, the profit maximizing, risk minimizing strategy is not to expand production because the companies with long experience of economic ups and downs know that the demand boost is temporary.