Blog: A few supply-and-demand truths

Melisa D. Galvin

A lot of dusty old economics textbooks are being sought to study these days. A quick look at a supply-and-demand graph might tell a lot. For the first time in decades, we are in a seller’s market. Most people in our industry don’t remember the last time this occurred nor […]

A lot of dusty old economics textbooks are being sought to study these days. A quick look at a supply-and-demand graph might tell a lot.

For the first time in decades, we are in a seller’s market. Most people in our industry don’t remember the last time this occurred nor were they prepared for this one. Using our textbook, we can find some help:

  • Scarcity creates value, usually through inflation.
  • IN-ventory does not increase in value unless through scarcity or growing demand. You avoid OUT-ventory.
  • You cannot sell from an empty wagon.
  • Both longer distances and overwhelming stress in the logistical chain create more broken promises.
  • Break a delivery promise once, shame on me; break a delivery promise many times and you must be in the furniture industry.
  • Everyone who has an economic advantage will use it when the opportunity presents itself (this includes raw material suppliers, all elements of logistics, vendors of all types including manufacturers, importers and others use this opportunity to raise prices).
  • If all elements that go into a product go up in price (raw materials, labor, taxes, transportation) it is the end seller that has the largest price increase to pass along: the  retailer.
  • More supplier-retailer relationships are ended by either financial strain or better money available elsewhere.
  • Sales persons on all levels hate price increases(only CFOs like them).
  • Americans buy individual furniture items so seldom (because of the long life of our products) they are not knowledgeable about current prices. Also known as “The Price is Right” codicil.
  • No consumer will recognize a furniture price increase unless you tell them: Do not mark a higher price over a lower price on a tag and never forget to mark-up the “compared to $$$$” price when you raise the merchandise price.
  • If you are not raising your prices when all around you are raising theirs, your store will be remembered for its great values during the liquidation sale.
  • The more desperate retailers are for product, the less important who your wife, brother-in-law or grandfather becomes.
  • Blaming or yelling at the vendors’ sales rep when there is a problem with deliveries, availability or price makes as much sense as getting angry at an animal for walking in front of your car. Neither of you are at fault.
  • Something owned by someone else is worth more the more you NEED it, and they know it.

There are so many things to consider. If you are scraping the bottom of your inventories you may be eating into your LIFO reserve which might inflate your paper profits but not your cash profits.

We will lose retailers who cannot function in these challenges. We already have. Don’t you be one of them.

W.W. “Jerry” Epperson, Jr. is a founder and managing director of Mann, Armistead & Epperson, Ltd., an investment banking and research firm. Jerry is the head of their research efforts and has in excess of thirty years of experience in the publication of hard/soft dollar research which focuses on demographics, consumer products, furnishings (residential and contract) and related issues. More specifically, Jerry’s research in the furnishings industry is recognized on a world-wide basis for its in-depth coverage of suppliers, manufacturers and retailers.

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