Holiday Sales Beat Predictions & Supply Chain Shortages May Soon Turn into a Supply Chain Glut

The pre-holiday predictions of empty store shelves and disappointing sales numbers were overly pessimistic. 2021 holiday sales jumped 8.5% from 2020, the largest increase in 17 years. And, sales rose by 10.7% compared to the pre-pandemic 2019 holiday season. Online sales rose 11% from 2020 and 61% over 2019. Clothing and jewelry were especially popular with sales increasing by more than 30%. Retailers largely found ways to get around the supply chain problems that have plagued the economy and ignited inflation.

Economists know what's coming next; a supply chain glut and falling prices as retailers scramble to unload extra inventory. Think of it like this; what happened when people thought that they wouldn't be able to get toilet paper? They hoarded all they could get their hands on. The same mentality inflicts the business world. The natural response to a supply-shortage is to order extra and that's exactly what companies have done.

Iowa Forums.com: “Customers don’t want to be in the same position in 2022 that they were in 2021,” said Christian Storch, CFO at Altra Industrial Motion, a vehicle-parts maker. “They have doubled-, tripled-up on orders given the extended lead times.”

Axios: "I think a lot of companies are double ordering, which is typical any time there are supply constraints,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management."

The supply chain logjam is starting to dissipate, a bit faster than expected, and the excess inventory of parts and products will soon reach manufacturers and retailers in the US. Moreover, thousands of containers of late Christmas inventory are also showing up at stores across America. And, there is the potential for the Omicron variant to keep people out of their local malls. As a result, product shortages may soon turn into a product glut. Manufacturers and stores will then be forced to cut prices to keep Americans shopping and move their excess inventory.

Retailers are betting that consumer demand will continue to expand to absorb their excess without drastic discounts, but don't be surprised to see a bit of deflation in the consumer price index by the Spring.

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By: Don Lam & Curated Content