Jim’s Mailbox

Posted at 10:16 AM (CST) by & filed under Jim's Mailbox.

Dear James,
The Dollar Store Supply Chain Barometer
The average person doesn’t think or care about the supply chain. The supply chain is the process of getting your stuff from where it is made to the place where you can buy it. We don’t have to think about the when, where and how scenarios. We merely go the store, locate what we want on the shelf, pay for our items, and leave with our purchases.
There isn’t a great deal of thought involved in how we acquire what we want and need. Back in the day, items were supplied to most destinations by railroad and there wasn’t enormous international distances between the source of supply and the end consumer. Today, we obtain goods from all over the world. Perishables and high value items are transported by airplanes, and almost everything else travels over sea as revealed by the Baltic Dry Index, which tracks the oceanic transport. What happens if the supply chain becomes disrupted? How will the average person know, and what can you do to prepare? Looking at Dollar Stores is a fast and easy barometer for determining changes in the supply chain.
In the past weeks, airlines to and from China have all but shut down. The Baltic Dry Index is at the lowest level since the 2008 financial crisis. What does this mean for you? It means that there is a real possibility that supplies from China are going to be diminished. The western world has become particularly dependent on Chinese goods, and the threat of the Corona Virus is creating impact on supply chains. This is not directly related to the Corona Virus. It is related to the fear of the spread of the virus. Regardless if the threat of Corona Virus is real or not, the fear is real and the supply chains are feeling the effects. At the very least, available goods coming from the East will be more costly since what is shipped will experience an increased transportation cost, making all goods increase in price. Fewer transports result in higher shipping costs.
If we look at dollar stores, where the cheapest items can be obtained, we may see a picture of the larger economy and the effects on the supply chain. In 2018, it was estimated that 42% of dollar store merchandise is directly from China. Shortages in the supply chain would quickly been seen in the inventory on dollar store shelves. If the inventory of dollar store merchandise begins to disappear from the shelves, the average consumer would know that there are problems with the supply chain. If there are items missing from shelves in the dollar store, it would be a fairly quick reflection of what is occurring in the supply chain. Although a trend would be seen in retail in general, the dollar stores may be the first to reveal such a trend, and could be seen as the “canary in the coal mine” of Chinese merchandise availability. It would be interesting to watch the dollar stores over the next 6-8 weeks. Just some food for thought!
My Dear Sister K