It could be deja vu all over again for US consumers this fall and winter as new limits on staple items take hold at one of the largest retailers. Costco is reportedly limiting the sale of toilet paper, cleaning supplies, and other items in a bid to shore up inventory and keep it available for consumers as production and logistics problems tie up new product shipments. Following a limit on the sale of certain fresh meat items, Costco’s latest move can be seen as a proactive measure on the company’s part as well as be interpreted as a sign of things to come for shoppers at the end of the year.
These limits come after a robust year of sales for home items and other goods including jewelry, CNBC reports.
This is a trend that goes well beyond Costco, too, as many retailers report healthy sales in categories such as home fitness equipment, electronics, and other items perfectly suited to the trend of people spending more time than ever at home.
Chief Financial Officer Richard Galanti explained the product limits in a recent earnings call, likening it to the same situation faced at this time last year:
“A year ago there was a shortage of merchandise. Now they’ve got plenty of merchandise but there’s two- or three-week delays on getting it delivered because there’s a limit on short-term changes to trucking and delivery needs of the suppliers, so it really is all over the board.”
As for the phenomenon driving all of this, look no further than the COVID-19 pandemic. Yet, as complex problems often go, there’s more to it than that. The novel coronavirus outbreak and ensuing shutdowns and lockdowns disrupted supply chain flows and production schedules. Further, it led to accelerated demand in certain areas that made procurement a nightmare last year, especially for grocery stores. In fact, demand in certain categories, such as bottled water and toilet paper, was so off the charts that it is tough, even now, to accurately stock shelves.
The 2021 Forecasting and Inventory Benchmark Study: Supply Chain Performance During the Covid-19 Pandemic, a study commissioned by E2open, explains in brief:
“Traditional forecasting is based on the presumption that history repeats itself. Even in the best of times, this method has limitations. During the pandemic, it completely failed. For companies trying to predict demand in March of 2020 as the world was descending into lockdown and everything was being turned upside down, what happened in March of 2019 had little to no relevance. The pandemic created seismic changes in consumer behavior.”
Specifically, Costco’s limits hope to mitigate this issue and avoid what is known as an “extreme error.”
“While supply chains are flexible in nature and designed to adapt to deviations from the plan,” the study points out, “instances of ‘extreme error’ — where forecasts exceed or fall short of sales by two times or more — are the most costly and disruptive to businesses,” the E2open study explains.
One contributor to this extreme error phenomenon was some of the rampant panic buying consumers witnessed last year during the height of the pandemic. But it wasn’t the only factor then and it wouldn’t be now. That said, there is little denying that panic buying on the part of consumers only makes a shortage worse.
“Panic buying exacerbated the problem. As shelves emptied at the beginning of the pandemic, consumers were less picky about their preferences. They searched for any product in a category they could get their hands on. This meant that slow moving items in a product category got snapped up, and the forecast for these items was significantly too low,” Forbes reports.
Currently, primary materials markets are having a huge influence on the production rate of many paper products.
Specifically, supply chain bottlenecks in the distribution of wood pulp to manufacturers is leading to a delay in production, Supply Chain Dive reports. This has, in turn, led to rising prices for consumers in the market for paper products. To underscore this, the price of raw wood pulp jumped 50.2% in August 2021, sending consumer prices for related products up some 4% to 8% on average.
The good news is that most of these problems are not related to a rise in the number of COVID-19 cases or a reemergence of pandemic conditions; rather, they are being dictated by logistics hurdles and supply chain bottlenecks that will eventually smooth out over the course of the next year.
“Activity is picking up again as people are restocking again, but this may just be temporary. I don’t think these problems are so much related to the increasing number of new COVID cases and panic buying, instead it has to do with logistics issues,” RISI Tissue Principal Esko Uutela commented to Supply Chain Dive.
Noting that Costco is taking a proactive stance to head off a potential shortage situation on its shelves, other retailers such as big-box club competitor Sam’s Club are taking note. Even so, it is believed that the primary issue facing consumers in a broad sense is shortages of multiple product types. This alone may influence shopper behavior during the critical fall and winter holiday shopping season in the United States with many customers moving purchases ahead of schedule when compared with traditional shopping habits.
“The biggest challenge for U.S. consumers will be that demand will outstrip supply.… Consumers will need to pull forward holiday shopping rather than wait till Thanksgiving and after,” president of retail advisory service JLL Naveen Jaggi told Forbes.
Consumers are advised to stay informed of the situation and to maintain traditional buying patterns with regard to paper products. As explained above, panic buying will only make the problem that much worse and could stall an eventual restoration of full inventory to store shelves in the coming year. If optimal conditions are achieved, industry experts expect a production rebound sometime during 2022 for most consumer staple products.
Related Topic: Sam’s Club Introduces 2-Pack Limit on Fresh Chicken