looming/temporary supply glut

I’ve recently gotten a number of emails from small- or medium-sized companies that I’ve bought from in the past. They have a similar theme: item xxx that has been in short supply since the pandemic began is now back in stock and available for sale. I’m one of the lucky few getting advance notice of this.

As far as I can see, the shift is not from having nothing to sell to having something. It’s from having limited inventories, where it makes no sense to spend advertising dollars to create demand that can’t be fulfilled, to having at least enough on hand that potential sales need a helping hand.

My sense is that this is a reprise of last year’s Walmart/Target, except on a smaller company-by-company scale but broader overall. Last year, WMT and TGT pulled out all the stops to ensure that tons of pandemic electronic necessities–big TVs, entertainment centers, game consoles…were on their showroom floors. They doubtless (translation: I haven’t tried to find out, the companies would likely not confess, but experience tells me this is what happened) double-and triple-ordered, paid earlier than usual and limited their right to return unsold merchandise.

Then pandemic-induced demand dried up. So the firms were forced to quickly reverse course from acquiring the latest merchandise to converting the inventories they had into cash–preferably at a measured pace, so as to avoid losses as much as possible and maybe make a small profit. But converting inventories into cash was a much bigger priority. I said “quickly,” meaning the companies did the smart thing by turning on a dime. However, I think the inventory reduction took nine months or so.

My recent emails give me the sense that the same inventory shortage issue is now appearing for smaller companies, who have less clout with suppliers than WMT/TGT. On the one hand, this suggests that overall supply chain issues have been solved. On the other, it suggests that we’ll see a reprise of the 2022 profit struggles of WMT/TGT this year, but among medium-sized firms.

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