Ritchie Trucking Service in Fresno delivers appliances throughout the Central Valley. Appliances have been some of the hardest hit in terms of lack of supply. Photo by Edward Smith.
Written by Edward Smith
Even as consumer purchasing has reached levels never seen before, there lies a problem below the surface — having the inventory to meet demand.
Being at home has redirected people’s budgeting priorities. And extra consumer cash — whether it is unemployment money or unspent money from not going out — has found its way to retailers.
Instead of going on vacation, people are spending money on decks and painting, said Farla Efros, president of HRC Retail Advisory, based in Illinois. “They’re using the excess cash and spending it on their home,” Efros said.
Home improvement retailers are seeing growth in categories that haven’t moved in 50 years. For sales in paint or lumber, typical growth might be 1-2% year-over-year, but in the era of Covid, retailers are experience double digit growth.
“Decks — double-digit growth. Pools — double-digit growth. You can’t even get fitness equipment. You can’t even get a Peloton right now,” Efros said.
Ian Williams, general manager at Fresno Ag and Hardware, said his store has not been immune to inventory problems.
Across the country, the Ace Hardware cooperative, to which Fresno Ag belongs, has been expanding, especially after Lowe’s closed Orchard Supply Hardware, said Williams. Stores have been popping up and that means more items to supply.
Where normally Ace Hardware might process 90,000 orders a day, that number jumped to 190,000 orders daily in April and May, Williams said. At Fresno Ag, departments such as lawn and garden, outdoor living, tools and even paint grew upwards of 20%, whereas normal growth for a department might be 5% year-over-year. In 2013, they faced a similar problem and they learned to keep secondary and tertiary vendors at the ready. He’s had to switch vendors for many products.
“They’re a little more expensive, but at least we have the product,” said Williams.
While non-essential retailers are suffering, others are experiencing levels of growth they’ve never seen before.
“With extra incentives from the government, [consumers are] putting caution aside and jumping into the fire,” said Marc Zenovich, builder sales manager at Ferguson Enterprises in Fresno.
Ferguson distributes building materials to commercial buyers, as well as directly to the consumer, including appliances.
Homebuilders usually place orders for large quantities of cooking ranges.
Manufacturers aren’t sending shipments of 200 cooktops or range hoods like they did in the past, said Zenovich. Deliveries are being done in quantities of 10 at the maximum. That’s put logistics behind because they can’t fill trucks as often, and it’s become a lot more expensive to do business, Zenovich said.
Multi-family property managers are getting requests to replace or fix broken refrigerators and orders are a month out, at least.
“Can you imagine not having a refrigerator for 30 days and having a family to feed?” Zenovich said.
At the beginning of the crisis, before lockdown measures when Chinese manufacturers were being shut down, suppliers were confident that supply lines wouldn’t be disrupted. Manufacturers across the globe have had to shut down. When businesses get a positive case, plants have had been shuddered out of necessary precaution. Add to that record sales during Memorial Day and July 4 and warehouses have been emptied. Most manufacturers have canceled discounts for major holidays such as Labor Day and even Black Friday. They don’t have the supply to discount anything, said Zenovich.
“The whole economy is fictitious, it feels like there’s a lot of facade out there and nobody’s going ‘we better sit tight and hold onto what we have,’” said Zenovich.
On the building side, lumber has its own difficulties. Lumber mills closed at the end of 2019 in anticipation of a slow 2020, according to Jeff Perritte, owner of White Pine Lumber in Fresno. Without as many mills, demand is so high that they can’t get close to meeting the demand.
“You can’t find the material and no one wants to step in at the wholesale market level and come off because once they come off, they have to take a position.”
Prices are established when lumber leaves the mill, but it might take a week to come by rail. Middlemen don’t want to bring in supply because they are scared that if they buy high, the price will drop, said Perritte. This has caused severe supply shortages. Quotes on prices for large commercial projects are no longer good for 30 days.
“It’s really scary,” said Perritte.
In April, Perritte was quoted $570 for a thousand board feet in April, and this month was quoted $900 for the same amount of 2x4s. Prices change daily, but he still has orders to fulfill.
“If prices go negative, there’s nothing I can do about it.”
Right now, he’s waiting for demand to level off — either rain to slow down construction or prices to become so high that home buyers are faced with sticker shock.
In the world of cars, shuttered plants have caused shipping delays. A pent-up demand following the shelter-in-place orders being lifted surprised some, said Amber Nelson Billingsley, marketing director for the Nelson Group, owners of the Selma Auto Mall. Buyers have shifted to pre-owned vehicles, and where they used to sell two new vehicles for every pre-owned one, they are now selling the two at almost the same rate.
They are only getting 10% of the Chevrolets that they would normally get, and Nelson Billingsley doesn’t expect that number to return anywhere close to normal until the end of 2020. While they expect their Hondas to normalize around October, they only have 80 at the moment, where they should have between 200-250.
This kind of demand has business owners thrown for a loop for how they will approach 2021.
“They’re already so disappointed because of what they’re going through, but when they’re forecasting for next year, they should just pretend that 2020 never existed,” said Efros.