Did you start any holiday shopping (either on-line or in person) last week? I saw an article that ran yesterday on The New York Times’ website reporting that on-line shoppers started buying on Thanksgiving, and continued through the weekend and well into so-called Cyber Monday. In fact, by 6:00 p.m. on Monday, Eastern time, sales were up 20 percent over those through the same time period on the Monday after Thanksgiving a year ago, according to research firm Coremetrics.
Furthermore, Consumer spending—combined on-line and in stores—over the four-day weekend was up more than 6 percent over last year’s spending, according to a National Retail Federation survey conducted by BIGresearch. According to the survey, shoppers also spent more, with the average shopper this weekend spending $365.34, up from last year’s $343.31. Total spending reached an estimated $45.0 billion.
The downside, however, as pointed out in an article that ran yesterday on Supply & Demand Chain Executive, is that while Black Friday weekend sales do offer some positive news, retailers now face the very real prospect of a product shortage. Not the kind of limited shortage usually associated with each year’s most popular gifts—like trying to find a Nintendo Wii system a few years ago--but rather instead, a widespread shortage of the most wanted electrical consumer goods, such as games consoles and flat screen TVs.
The problem, says Paul Martyn, a vice president at supply management specialist BravoSolution, is that given the on-going economic uncertainty, companies continue to hold onto their cash reserves wherever possible. So, for example, suppliers have reduced inventory levels to combat the potential for being left with obsolete inventory. The consequence is that lead times for electrical components have increased significantly, hitting high levels that now stand at 52 days, which is five times higher than the previous 10-12 day standard, according to BravoSolution research.
This isn’t a new development. I’ve written before about the on-going shortage of components and the financial impact of that shortage on manufacturers. Nevertheless, the problem in this case is that, considering the lengthy lead times associated with electronics, it’s possible retailers will sell out of products before the holidays—and won’t receive new shipments this year. There’s also the risk that retailers’ shelves could remain empty into the new year.
Due to the surge in demand, the holiday season is always challenging for retailers, says Martyn. With sales at risk at such a crucial time of the year, there is a real danger that quarterly results will be effected, which will ultimately have a substantial impact on the profitability and share price performance of both manufacturers and retailers alike.
As we all know, it’s difficult—to say the least—to predict consumer demand. It’s not likely but is possible that, considering the economy and unemployment rates, we’ve already seen the spike for this year’s holiday sales. Of course, demand for consumer electronics could also hold steady or even increase. In any case, if I were planning to purchase a flat screen TV or similar item this year, I’d certainly plan on doing so sooner rather than later.