These multiple disasters already have resulted in substantial supply chain disruptions in the auto and electronics industries but prolonged troubles are not expected. A few suppliers in the snow sports market may experience some supply chain disruptions, however, these issues will not last long. Economic analysis of disaster impacts (man-made and natural) point to short term difficulties followed by a period of recovery and increased innovation. Overall, the global economy will not experience extended damage from these disasters, the snow sports market will not suffer significantly, and the economy in Japan will recover on the heels of increased innovation and reconstruction.
“In the short run, industrial production has been severely impacted across a range of industries: the world’s largest automaker, Toyota, said Monday that a halt to assembly lines through Tuesday would cut output by 40,000 vehicles. But given that the economy bounced back relatively quickly from the Kobe earthquake, analysts are generally optimistic that Japan will return to growth in the second half of this year.” – Jeremy Bogaisky, Forbes Magazine, March 14, 2011 – Parsing the Economic Impact Of The Japanese Disaster
Although the economic outlook is good regarding Japan’s disasters, there are significant market trends to watch in preparation for the 2011-12 snow sports season. The global economy and the U.S. consumer will be impacted by rising energy, food, and apparel prices.The U.S. Consumer Price Index, a key measure of inflation, increased 2.1% over the past 12 months ending in February according to the Bureau of Labor Statistics. U.S. consumers were hit hardest by rising prices at the gas pumps and grocery stores. Energy prices surged 11% over the 12-month period. Food rose 2.3% — its largest increase since May 2009. Additionally, rising production and materials costs are driving apparel prices higher. Major apparel suppliers including Nike and Perry Ellis have announced higher prices for upcoming lines.
“Apparel prices are going to go up. It’s as simple as that,” Perry Ellis Chief Executive George Feldenkreis, who said a rise of up to 10 percent will be seen next year. “The American consumer will have to accept it.” – Reuter’s News Service, August 20, 2010.
What happens if consumers can’t afford these price increases? U.S. consumers, who are just catching their breath after the “Great Recession,” who are still grappling with unemployment over 9%, and with higher prices for food, gas, and apparel may not be able to absorb significant price increases and will need to limit discretionary spending. The good news is, the typical snow sports participant lives in a household with income levels far higher than average, very high education levels, less unemployment, and more discretionary income. They are less likely to be strapped for cash when prices go up. So, the good news is, snow sports suppliers and retailers can preserve their margins. The bad news is, if the average U.S. consumer stops spending we could see the economy dip back into recession