New Normal? Fixture Kona Business Points to Supply Chain Shortage as Reason for Closing
Kaloko Furniture, providing custom-made pieces for years out of their Maiau Street location in the Costco neighborhood, is closing its operation. The owners, Oliver and Julia Kiel, said they can no longer sustain a profitable business model to warrant keeping their doors open.
It’s not from a lack of customer demand.
Far from it.
Orders have been as ample as ever.
They just can’t get anybody to fulfill them in a timely fashion, citing the backlogged supply chain that’s hamstringing the country’s business sector as the primary reason they can no longer afford to keep the lights on.
“We have no choice,” Oliver Kiel told Big Island Now. “We can’t sustain a business model with no furniture.”
The Kiel’s aren’t alone. Across Hawaiʻi Island, grocery store shelves are bare and goods and items are hard to come due to an impeded supply chain and reduced labor force throughout the country. The two factors are a pair of after-effects from the world shutting down during the COVID-19 pandemic and the slow crawl back to economic recovery. While Hawaiʻi, which is heavily reliant on importing supplies, is used to being at the mercy of cargo shipments, the sparse supply stock is taking its toll here, too.
Come to Hawaii. Our shelves have been empty for months— J. (@libtardCutiePie) January 12, 2022
The problem began as soon as the world started opening back up in 2020, as the nonprofit thinktank, Council on Foreign Affairs, explained in a December article.
A pent-up, pandemic-induced increase in demand for goods boomed as soon businesses tried to get back to normal, but companies weren’t ready to meet it. For years, those companies had been disciplined by the market into creating “just-in-time” supply chains and holding little inventory, but this time around they couldn’t scramble at the last minute to keep up. Americans took the money they usually spent on experiences and redirected toward things for their homes, like exercise equipment, office and classroom supplies and other wares.
Coinciding with this, some sectors such as warehousing struggled to attract and retain workers. Those factors were a big reason why containers loaded with goods sat idly at major ports like Los Angeles, waiting for weeks to dock.
“As a result, shoppers around the country saw sparse shelves and higher prices,” CFA writer Anshu Siripurapu wrote.
I am noticing a lot of empty shelves these days, and while I had wondered if it was just shipping issues into Hawaii (bad enough), your tweet reminds me that this is a systemic issue that is only going to get worse.— either Kate Elliott is in revisions or her book is (@KateElliottSFF) September 14, 2020
For Kiel, custom furniture orders that used to take a couple of months to attain through his suppliers in Indiana and California are now at least 18 months out. It’s especially difficult for Hawaiʻi businesses to order because, unlike on the mainland, they have to have a full shipping container’s worth of good each time. They can’t just submit a one- or two-piece request. For Kaloko Furniture, that meant filling a container’s worth of custom-made pieces, upward of 30 per container, and then finding out the whole container, all 30 pieces, would be more than a year out.
Trying to circumvent the problem by working with producers in China isn’t a realistic option. That production source would be feasible if the goal was to get cheaper, basic furniture designs, but not custom made pieces out of fine woods.
“My stuff is made in America,” he said. “I’m very proud of that.”
How long will the backlog last?
Nobody truly knows. The New York Times opined recently that the current state of affairs is expected to continue through 2022, while the University of Hawaiʻi Economic Research Organization, UHERO, listed the labor shortage as a factor that will slow economic recovery for the state in 2022.
“Moderate job gains will continue, although labor shortages, the end of pandemic support, and higher inflation will weigh on progress,” the organization wrote in its Dec. 30 research paper, “Bird’s eye view of COVID-19, mobility, and labor markets across the U.S.” “Supply chain disruptions could reverberate for a while despite limited and ultra-local interventions.”
Eugene Tian, research and statistics officer for the State of Hawaiʻi, said the supply chain issue isn’t as serious in Hawai‘i as it is on the mainland.
In fact, dats shows that goods are still moving and changing hands in the Aloha State. Hawaiʻi’s retail sales and wholesales have been increasing since March 2021 due to the recovery of tourism.
The real impact of the supply chain shortage is on the price, Tian said. Hawai‘i’s commodity price – that’s the average price for a good – increased by 7% during the second half of 2021, and the 2021 amount as a whole increased 5.3%, the highest during the last 10 years.
How significant a jump is that?
“The commodity price increase of 5.3% in 2021 was the highest since 1991,” Tian explained.
Add to that the fact that Hawai‘i business bankruptcy filings decreased 8.1% in 2020 and decreased even more, 22.3%, in 2021, and the numbers show supplies are being purchased – just at a more expensive rate – and businesses are staying open.
“The above statistics show the impact of supply chain is mainly on the price, not the volume,” Tian explained.
Hawaii is home. But this place is way to dam expensive. They be killing locals to live here. 1 bedroom 1700$. Side order inflation with that.— Jacob VanderVelde (@JACOBJMV) January 6, 2022
On Hawai‘i Island, businesses are experiencing what businesses across the world are dealing with, Dennis Boyd, executive director for the Small Business Development Center, said: Goods are hard to come by.
“It’s such a far-reaching problem, a mega-problem, we can’t really help them much,” Boyd said about the small businesses who come to the organization seeking guidance and advice of navigating the business world. “It’s already become part of the norm.”
The development center, with an office in Kailua-Kona, provides professional business advice, research and training to business owners and new entrepreneurs in order to promote economic growth.
A trend Boyd said he’s noticed at the local level during the recent COVID and supply-chain disruption is the type of businesses now entering the market. Individuals are still opening new businesses, but those operations are less goods-based and more sole-proprietor operations that are offering services rather than supplies.
The numbers indicate as much.
In 2019, the center helped 101 clients statewide, which represented $32.5 million in capital infusion through loans and various other costs. In 2020, it helped 69 clients, representing $29 million. In 2021, it went up to 73 people but down to $22.2 million.
People are still venturing into the business world, but doing so with less. It’s a trend Boyd said he expects to see continue in 2022.
“We saw more people striking out as individual entrepreneurs,” he said. “They’re still entrepreneurs … People are pretty resilient.”
Meanwhile, Kaloko Furniture is having its liquidation sale through Feb. 28.
While the supply chain shortage was the primary factor in the store closing, it wasn’t the only one.
Inflation and difficulty finding workers were part of the owners problem, too, Oliver Kiel said. If they were to stay, their rent would go up and they’ve had to call former employees to come work in emergencies, so shorthanded they’ve been at times.
Hawaii’s unemployment rate is around 6%. That’s a far cry from the roughly 20% percent during the peak of the shutdown, but higher than the 2% it was at prior to the pandemic. It’s been difficult finding people, as national reports say, who want to go back to work.
All of that together spells that it’s time to move on, Kiel said.
He’s lucky, he said, because he’s worked all his life and whatever the next chapter brings, it’ll be to supplement their retirement. He has two hands and will be willing to do anything, so the new phase o f his life also comes with some excitement. But he feels empathy for businesses that have to navigate the current climate for the foreseeable future just to make their livings.
“It’s really tricky,” he said. “Nobody has anything … Everyone has the same issue.”