Supply Chain Seems Capable of Handling iPhone Surge

As consumer demand for high-end electronic merchandise ramps up, economists are not seeing any disruptions in the supply chain.

The Commerce Department reported that retail sales were up 0.5 percent in October, with sales excluding autos up 0.6 percent.

October retail sales were driven by the highly anticipated release of Apple’s iPhone 4S. Sales at electronics stores were up 3.7 percent in October – the most since November 2009 – as “Apple junkies” rushed to purchase the device. Unprecedented brand loyalty has allowed Apple to charge a hefty price premium and still show strong sales growth, even in the face of recession-level consumer confidence and weak demand. Non-store retailers also posted significant gains, as many took to the web to purchase the device rather than wait in line.

“Even though the American consumer faces strong headwinds – low consumer confidence, high unemployment rates, higher prices, and poor wage growth – they are still willing to splurge on that one expensive item every once in a while,” said Chris Christopher, senior principal economist with IHS Global Insight.

Department and clothing stores took a major hit in October, indicating that demand for a particular set of products, rather than an improvement in overall consumer demand, is driving the increase in retail sales.

IHS Global Insight expects holiday retail sales to be 4.2 percent higher than last year, but about half of this increase is due to higher prices. Holiday sales rose more than 5 percent last year, after two consecutive years of hanging in negative territory.

This year’s figure will be inflated by the fact that prices for many retail goods were falling in year-on-year terms in the fourth quarter of 2010, cautioned Christopher.

“But there is nothing in our research to suggest supply chain managers will need to change their sourcing strategies at this point,” he said.

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