When people buy a little more than what they usually need, we call it speculation. When they buy much, much more, we call it hoarding.
What happens when people hoard? Do the enterprises that supply the goods gain in sales and profits? Do hoarders make money?
Hoarding happens when people perceive they might not be able to buy the items they essentially will need in the very near future. They end up buying a lot, to the extent consumers empty grocery shelves or businessmen use up all of their storage and look for more.
Hoarding is not the same as building up buffer stocks or safety stocks. Buffer and safety stocks take into account estimated variations in demand and supply. These would be based on statistical formulae, as in like standard deviations if one recalls his or her education in statistics.
Hoarding doesn’t have any statistical basis. It is pure over-speculation borne by exaggerated perceptions of a current reality. It often is a reaction to an adverse situation.
A typhoon threatens to hit town. Residents panic and buy based on what they believe they would need when the storm hits and afterwards. How much they buy is based on fear and perceptions. Perceptions are based more on emotion than it is speculation. Hence, people buy as an emotional response and they tend to buy a lot more than they really need.
Hoarding doesn’t benefit anyone. Having too much of anything either eventually results in wastage or in having cash tied up for too long in the stuff bought. Hoarders believe they would profit a great deal from selling the excess stuff that would become scarce but even then, the money earned is just a one-time bonus and the windfall doesn’t necessarily come at once. Hoarders pay for the additional cost of storing the stuff and the opportunity cost for the cash they expended would be sunk into the goods they probably would be keeping for some time.
Hoarding regularly also isn’t really a good idea. On top of the added cost of storage and lost cash liquidity, having a lot of inventory drives up expenses. Costs for security and upkeep creep in and eat away profits.
Successful wholesalers especially of consumer goods and food items should not be classed as hoarders. One wholesaler I know stocks up on canned goods and liquor starting July of every year. He stocks up enough quantities that would meet likely demand for the year-end holiday season. He bases his projected sales on the demand histories of the products he stocks. And he’s often right. The goods he bought and stocked up end up practically sold out before Christmas.
Hoarders on the other hand don’t base their purchases on demand forecasts. More often than not they end up with inventories that last for months and even years. Hoarders buy based on irrational reasoning. Wholesalers buy based on rational estimates.
Hoarders likely won’t listen to advice to not stock too much. Some enterprises, therefore, control how much inventory they make available to their customers, especially if the products they sell are fast-selling essential commodities. Suppliers will ration and allocate to discourage hoarding. Or they’ll ask for cash up front as hoarders, just like everyone else, would have limits in their financial capacities to pay.
Hoarders can be very persistent in procuring the stuff they want to keep for themselves and satisfy their irrational urges. Enterprises should distinguish who their customers are from the hoarders that put away products and refuse to share with others who may need them just as much, if not more.
Customers may be always right. Hoarders never are.