Supply shortages: a retail rollercoaster

Malcolm Scott, the KBSA corporate chair, reflects on Brexit, supply chain disruption, labour shortages, the pandemic and price increases as he predicts there will be ongoing ‘issues’ for some time to come.

Several big brands – including Electrolux and Whirlpool – recently reported a significant increase in sales during Q2 of 2021. Those of you who noticed these results might just be wondering what is going on?

Several KBSA members I have spoken to recently are reporting very strong sales and strong forward order books. The second quarter of 2021, saw the number of new houses being built reach an all-time high of 46,010 – the highest for five years. But house builders have suffered almost as much as showrooms over the past 18 months, with the top seven builders seeing their combined completions drop from 80,000 homes during 2019 to 57,426 homes during 2020 a drop of almost 30%.  

According to Statista, the market information company, total weekly sales of UK domestic appliances dropped by 21% during April 2020, bouncing back during May 2020, and increased by 18% by July 2020, only to drop again by 12.5% during December 2020, followed by a climb to a weekly increase in sales of 32.5% during May 2021 – a real rollercoaster. 

The Office of National Statistics reported furniture store sales up 7.7% during May 2021, they also report combined retail sales for April and May 2021 up 7.7% against the same period last year. Interestingly, the ONS report shows online sales down from 29.8% of all sales to 28.5% of all sales between April and May 2021, as consumers began to use stores again. The 2020 disruption in retail sales was huge, but the bounce back has been rapid, with May 2021 total retail sales up 24.6% against the May 2020 figure. These huge fluctuations in demand can explain many of the shortages in the supply chain.

The impact of Brexit has been largely missed, as we all struggle to deal with the pandemic, however that impact is also substantial. Estimates of the number of EU migrants who have simply ‘packed up and gone home’ vary considerably, but no one seems to be denying that a large number of workers, and consumers, have moved back to central and eastern Europe, leaving significant employment shortages for business owners. The ONS estimates that current vacancies are up by 77,500 against pre-pandemic levels to 862,000 vacancies. Total unemployment is down by 0.2% to 4.8%.

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Shortage of workers and consumers

Employees ‘on payroll’ were up 356,000 against June 2020 to 28.6 million, which is still 206,000 below pre-pandemic levels, yet it is extremely difficult to find staff, why? The Oxford Migration Observatory estimates that more than 130,000 migrant workers left the UK early in 2020, while over a longer period, the Economic Centre of Excellence estimates that 1.3m ‘born abroad’ residents left the UK in the 12 months prior to September 2020. The actual figure might never be known, but is obviously substantial. Clearly UK plc now has fewer workers available for vacancies, and there are fewer consumers to sell to as a direct result of Brexit.

Consumer spending throughout the whole of Europe has been disrupted by the pandemic, along with overall production capacity. Many countries with major manufacturing bases have seen factories close for months or operate at half of pre-pandemic capacity. Component shortages have been widespread. Surprisingly, many of those people laid off under the UK furlough scheme and other schemes throughout Europe have turned to home improvement to busy themselves, with demand for products like domestic appliances soaring throughout Europe. As all appliance retailers will tell you, lead times of 14 weeks for appliances are now common and indeed, lead times of less than four weeks are almost non-existent. This is true of almost every component used in the building trade. 

This really is the perfect storm with reasonably strong demand alongside significant supply chain issues and a shortage of staff. The single most visible category of employment experiencing problems is lorry driving, where even the largest of manufacturing groups are experiencing persistent issues. Alongside the shortage of drivers, the cost of international transportation has soared with a 40-foot sea container often costing up to five times the average cost for the previous five-year period. 

These global and national issues are not likely to correct themselves quickly, so we can expect price increases and disruption for a considerable period to come.

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