Labor Shortages in China
There has been much talk of labor shortages in the U.S., but China is having similar problems. In that 85% of the world’s toys are made in China, their labor shortage is our labor shortage.
A Wall Street Journal article, “Chinese Factories Are Having Labor Pains—‘We Can Hardly Find Any Workers’,” by Stella Yifan Xie and Liyan Qi states:
Labor shortages are materializing across China as young people shun factory jobs and more migrant workers stay home, offering a possible preview of larger challenges ahead as the workforce ages and shrinks.
Although fear of Coronavirus and a generation of Chinese young people who don’t want to work in factories are part of the cause, the more significant reason appears to be fewer young people in general. Forty years of the one-child policy resulted in what was intended – fewer children. China wanted, at the time, to reduce its population growth. It worked, but the result is fewer men and women available to do factory and other entry-level jobs.
The reduced labor force is not going to go away any time soon. That should mean upward pressure on wages—yet another cause of what looks like long term cost inflation.
Dollar Tree, the Canary in the Inflationary Coal Mine
Watch Dollar Tree and learn just how bad the concerns are about inflation. Dollar Tree, famous for selling everything for a dollar, is feeling the sting of the ocean freight tie-ups and inflation. Based upon what I am reading between the lines, they think prices are going higher, and freight prices are not going down.
Here is my analysis:
- Dollar Tree is the most vulnerable of any retailer to cost increases. When you are selling everything in your store for $1, you need to find products that you can actually sell for $1. With the increase in freight rates and inflation in general, it will be hard, if not impossible, for the retailer to find sufficient products that can sustain such a low price point.
- Dollar Tree is expanding its “Dollar Tree Plus” initiative. ” “Dollar Tree Plus” is a retail concept that allows for multiple price points, quite a departure for the company. The company is planning 500 stores for 2021 and 5000 stores by the end of 2024. By investing heavily in a multiple price point strategy, Dollar Tree is signaling that its days of everything for $1 are coming to an end.
- Dollar Tree, which owns Family Dollar, has been experimenting with combo stores. Family Dollar has always been a multiple price point operator. By combining the stores they are, in essence, doing something very similar to what they are doing with their “Dollar Tree Plus” program. Most new Family Dollar Store openings are in combination with Dollar Tree. The company is talking about over 500 stores by the end of next year.
More on Dollar Tree – “Regular Freight Carriers Will Fulfill Only 60-65% of Their Commitments”
The company’s previous freight outlook assumed that its regular ocean carriers would fulfill only 85% of their contractual commitments and also assumed higher spot market rates. However, Dollar Tree now projects that its regular carriers will fulfill only 60-65% of their commitments.NASDAQ from dollar tree second quarter report
If a chain with 15,000 stores can only get its freight carriers to deliver 60 – 65% of its orders, how bad are things for everyone else?
Vice President Kamela Harris Speaks About Toys
And finally a quote from Vice President Harris:
“The stories that we are now hearing about the caution that if you want to have Christmas toys for your children it might be the time to start buying them because the delay may be many, many months.”
Who says toys aren’t important.