http://www.bloomberg.com/apps/news?pid=20601088&sid=aP2jwJ1yX9BQ How long before this catches on? How long until food companies stop shipping alot of food supply so they can increase demand and increase profitability? Looks like these businesses are going to create their own markets now. Less inventory, less risk, more demand, more profits. Pretty simple really.
Wrong. There's no increase in demand from cutting supply. Think about it. Somewhere, Milton Friedman is turning in his grave. Demand is held static while supply is constricted. Companies have been doing this for some time now. Do some research on Post and General Mills during the grain bubble of last year. They've been keeping prices the same or slightly increasing since then, and decreasing the weight of cereals in the containers.
Do you know what happens when supply is constricted? People start buying more! They will buy to stock up on it, and they will buy to sell it to the sucker that didnt want to wait in line for 3 days to buy the "constricted" supplied product. Even that article says "if people want certain items, they will have to come in earlier" If that isnt an invitation to speculators, i dont know what is. You know what speculators im talking about right? The ones that buy the xboxes, playstations or whatever during Christmas, then sell them for 3 times what they paid for it. Forget Milton Friedman. Take a lesson From Milton Bradley. Play the game of monopoly get Park Place and see if the guy that gets Boardwalk sells to you for 400 dollars. No...he wants $2,000! This is whats going to happen.
When you guys have a moment from arguing would you tell me what "suppy" is? Do you eat it, drink it or just go to bed with it?
* INVENTORY â 80% of the business will be done on 20% of the selection of products or services. ------------------ Nothing new here, just getting back to basics. Somebody just woke up and realized there's no credit to be had for inventory. Besides IMO, the inventory excess was a direct result that in the past, the profit was made on the credit side and not on the product margin.
I once worked in a food supply company, close to monopoly to its market, we usually artificially decreasing supply couple of weeks before holiday seasons to drive up the price; so our sales people could have better bidding price and sale orders were slightly larger than usual in size. Anyway; the market can only take so much "abuse" from us, after each holiday season, price went back to normal in a month.
It is a merely inventory strategy. If company knows the supply staying constant, it will only keep minimum amount on hand. Once you disrupted the supply stream, company would increase inventory to reduce the risk of losing sale opportunity. Of course, it would also create vacuum period after supply stream restored. In which case, price would drop afterward that, at same time store can put up On-Sale on "off season" stuff, it will incite more sale/demand on next round of this never ending cycle of market.
Watch production ramp back up. Governments are in a catch 22. They'll pressure manufacturers and entice them with subsidies to keep workers employed and not sacked. This will lead to further deflation. Deflation will at least allow equilibrium to take place given the new wage structure (lower) in developed economies, which absorb most of the goods, anyways. It's the lesser of the evil of rampant unemployment like we're seeing in Spain and Italy (over 20%, officially). By the way, I'll try to find it, but I read the real rate of unemployment in the U.S. was 16%.