By now, we all know inflation is out there. One of the chief reasons is supply. The law of supply and demand is in full play. We also know that the chief reason for shortages is due to the pandemic. It is easy to put two-and-two together to understand this picture. What no one has put together is how this major problem has added another nail in the coffin to small business.
Hammer Comes Out...
in the early days of the internet. Congress realized that commercial enterprises like Amazon had an advantage over retail because there was no internet sales tax. This gave online purchasers a 6% to 7% pricing gap. The first to feel the pain were the large anchors in malls. Bigger purchases like refrigerator's, air conditioner's and other appliances were cheaper on the internet. They were delivered to your door at no extra charge. In most cases, a local installer came with the product.
Moving along, as sales fell to the large stores within the mall, the other smaller shops saw less foot traffic. One by one, they boarded up and left. This was and is the first visual decline in our way of life. Congress has still not acted to equalize the tax gap for brick and mortar to online. However, many states saw this as revenue. They have enacted to tax online sales. Nevertheless, the hammer came out and the first nail was lined up on the coffin for small business.
Fast Forward
Here we are in the last quarter of 2021. The nation has seen many new problems grow out of the pandemic. Many businesses, both large and small lost labor. The fear of COVID-19 is the root cause. The ramifications of lost labor is less product. The media can photograph the LA harbor. You see the ships idling in the water. You realize there is a problem. At present, the number of cargo boats is 80. It now takes an average of 17-days to unload a vessel. However, that does not mean that product is on its way to a warehouse, company or store. It just sits on decking. It waits for a driver to transport it. This is where the labor shortage comes into play. How long the container sits on the dock of the bay, only Otis Redding knows.
What we do know...
is that 4.4 million workers have quit their job in September. Of course, they are still seeking work. Maybe there is an undisclosed exodus to LA for harbor work? We do know that they are sick and tired of low-paying retail work that offers no benefits or future. This has been going on even before the pandemic. We, at Evolution have mentioned this aspect in past pieces. It is one major reason why we see a correction in the market and economy. With that said, the hammer wants another nail to bang.
Bad Signs
We checked the data from the American Banking Institute. It shows bankruptcy filings for retail. We all know 2020 was a bad year. The filings increase for the top worse five states were: 1) Alaska, (2) District of Columbia -not a state, (3) S. Dakota, (4) Montana and (5) N. Carolina. Now, we look at the top five worse or highest ratio for bankruptcies for 2021. 1) Nevada, (2) Florida, (3) Indiana, (4) N. Dakota and (5) California. There is one so bad, I will give it its own sentence. The state of Delaware has the highest ratio at 32.97% of all retail is in bankruptcy.
Inflation...
is the cause for more nails. The Trump stimulus plan offered money to businesses, both small and large. We do know that the money had problems getting into the needy hands. However, it kept things above water. It is the reason why small firms are still operable. The hammer stopped. It had no more nails due to supply shortages. Now, the harbor problem, the trucking problem and the labor problem are adding costs. A 40-foot cargo container runs $10K to ship from Shanghai to LA. Special need containers can run as high as $18K. This is for just 40-feet of product. We mentioned the unloading and reloading problem. Now, consider the shipper. Does he risk the ire of Walmart and Amazon or the small shop on Main Street? These small shops have no product for their best time of the year - Christmas. They survived with the last stimulus. Now, they face higher prices and stiff competition. If they somehow survive, the long-term has another problem. Their repeat, faithful shoppers could desert. When they come, they cannot find what they are looking for. They end up at the big retailers or online sites. Small business could be bleeding to death by a thousand cuts. Forget the hammer! The coffin is being lined by a nail gun. A sad time, indeed. Peace.
