Coronavirus

Why Hoarding Toilet Paper Ain’t A Charmin’ Sign of Things to Come

Hoarding is never pretty, and rationing goods in response to hoarding is never pretty either.

The eventual impact to manufacturers and retailers’ bottom lines? Well, that may be less that picturesque, too, if the laws of economics, supply and demand hold up. (And they will.)

Coronavirus fears, long lines, misallocation of resources, stockpiling of a product that ultimately takes a long time to work down — all of it translates into a ripple effect that is decidedly negative.

To get a sense of how it all unravels and unspools, so to speak, consider toilet paper.

Panic buying of toilet paper has led to empty shelves at brick-and-mortar locations, and in the eCommerce realm, stock outs seem universal. What you could find, at least headed into the weekend, anecdotally, was $80 for a 48-roll shipment.

In panics, commodities fetch luxury prices. Might we come to a point where basic hygiene becomes the purview of the rich?

In an email exchange with Forbes, Fernando Gonzales, president of manufacturer Georgia-Pacific consumer goods business, said consumers have been pushing up activity to “as high as two times our normal demand.”

Yet there’s been a tradeoff: reduced demand from businesses such as hotels and other enterprises as foot traffic, and guest counts, plummet. Forbes reported that Georgia-Pacific has been “working through its existing excess inventory” and increasing production where it can.

Data from RISI show that, as cited by The New York Times, Americans use an average of 23.6 rolls per capita per year, which translates to a bit less than half a roll a week — which indicates that a 48-pack of rolls will last quite a while, even at the family level.

In an interview with the Los Angeles Times, Willy Shih, a Harvard Business School professor who focuses on manufacturing supply chains, noted, “It’s not like suddenly all the toilet paper factories in the world are burning down. They’re still cranking this stuff out.”

We are not all that reliant on overseas production, as toilet paper imports less than 10 percent of the supply — and not from China but from close-by nations like Canada and Mexico.

When people hoard supplies where demand is steady, where the hoarding means that they are pulling forward the supply that will take months (maybe more) to work down, then this represents a pull-forward of revenues for companies that offer up that commodity. Thus, it stands to reason that there’s a burst of top-line flurry and then a correction. We may see that impact creep into firms’ results during quarterly earnings reports as the year winds on.

What’s Next

But the demand for toilet paper is a microcosm of what might happen next. As The Wall Street Journal reported Sunday, shelves are emptying at grocers and other retail locations. Companies across all manner of verticals have been telling workers to stay home. Schools are closing. It all equates to more folks congregating around the fridge, more meals being prepared at home, more items filling the pantry.

On a larger scale, supply of many (consumable) items is likely to become a lot scarcer, as any number of retailers have been cutting back on hours to deep clean, to restock (what they can), and in some cases they are going dark altogether.

The most outsized example here may be Walmart, which has said that it is reducing hours at 24-hour locations, for example, and those stores will be open 6 a.m.-11 p.m. Many Publix locations are cutting hours and now will close at 8 pm. Kroger locations will also cut back from 24-hour services.

Apple has closed all of its retail stores outside Greater China until March 27. Urban Outfitters is closing all stores worldwide till March 28.

Rationing may conceivably become the “new normal” if things get a lot worse. Here in the U.S., as The Wall Street Journal reported, supermarkets have been rationing staples, such as cold-and-flu related items and cleaners. The concept is gaining traction in the U.K., too. For example, the Health Secretary, Matt Hancock, has said that government-led “further measures” may be implemented, if, as Metro UK has reported, food stockpiling continues. Many chains are taking matters into their own hands, as the Irish Times reported that at least some supermarkets have been limiting baked beans, pasta and other items.

There’s an (eventual) line to be drawn between company-level actions and a more systemic approach to curbing runs on food and other supplies.

And if we get there, indeed, at this point, it’s a very big “if.”

Beyond the laws of supply and demand lie the laws of physics: For every action lies an opposite re-action. Constraining demand in order to keep at least some balance with available supply means that there may be an outgrowth of black markets, especially online, for exorbitant sums. It might be the case that the bad actors stock up on what they anticipate to be in high demand, thus hastening shortages.

Far-fetched though the scenario may be, it must be remembered that we’re facing public health, social and economic pressures that seemed far-fetched just a few weeks ago, when the coronavirus began wending its way across borders, upending the very fabric of daily life.

——————————

New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

TRENDING RIGHT NOW