Supply vs. Demand (vs. COVID)

Another day, another hectic Nugget drop. There’s no doubt about it — thousands of people who wanted Nuggets were unable to buy them today (we heard you, loud and clear!). Depending on where you looked, this was the fault of Shopify, of bots, of our policy regarding cart holds, of resellers, of a failure to scale our manufacturing operation, or a combination of all five. According to others, the quick sellout represented not a bug, but actually a strategic pillar of our business (it's not). 

Our goal isn't to counter every narrative we've seen. But, particularly since the onset of COVID, we've tried to share as much context and information as possible — not only about our products, but also about how we run our business. With so much disappointment around our release today, it felt like a good opportunity to continue that conversation. The fact is, the frustrations experienced by thousands today are legitimate and real. But they stem from a larger, more foundational issue: the unforgiving laws of supply and demand.

So let’s put on our Econ hats and take a closer look. Class is (virtually) in session!

What is the demand for Nuggets right now relative to the supply?

At the start of today’s release, at 12 PM Noon Eastern, there were three times as many people on our site as there were Nuggets available to buy. There’s no way around it — that’s going to cause a lot of pain. No matter how fast you check out, the chance that you’re in the group that misses out (66%) is higher than the chance you’re in the group that scores (33%). There's plenty of policy to be discussed below, but the fact is, no policy is going to fix a 3:1 demand-to-supply ratio. What could fix it, of course, would be…

Making more! A larger, higher-volume facility should have been built out by now, right?

We hear you! Quick Nugget history lesson (sorry, this is supposed to be Econ): it wasn’t until late last year that we started to experience order volumes far beyond what our current factory could handle. That’s when we began the process of seeking out, renting, and upfitting a 100,000 square foot space for industrial furniture production — a 6+ month process for the most well-resourced of teams. We knew the first half of this year would be hard, with supply unable to fully meet demand until the new factory had been built. And then a pandemic hit.

How is COVID impacting these restock days?

In our efforts to slow the spread of the novel coronavirus and protect our team, Nugget has severely reduced headcount per shift at our factory, resulting in roughly half the production and shipping volume that we would have were it not for the virus. What does that mean when we release a pre-sale like we did today? If we want everything to ship out by a particular date, we can only release half as much inventory as we would if it weren’t for COVID-19. This is putting an immense strain on our ability to serve all hopeful Nugget customers, and we believe there is no way around it that does not put our team, and their families, in unnecessary danger.

I just want to order, I don’t care how long it takes. Why not presell as many as people are willing to buy?

There are a couple of reasons we’ve intentionally limited these pre-sales. The first is committing ourselves (and our customers) to a timeline too far into the future, a future that we don’t yet live in and can’t predict. A lot can happen in just three months (see: global pandemic, nationwide protests, 15% unemployment), and companies should be able to adjust accordingly. That’s not something we can do if we’re pre-sold into November, and have already collected funds from tens of thousands of families. Second, if we committed to an unlimited, first-come, first-served pre-sale right now, it would be nearly impossible for us to provide accurate shipping timelines to everyone ordering. This would likely cause anyone who was at all interested in getting a Nugget by the end of the year to purchase right now — making demand spike even higher, pushing more families further back in the queue.

Speaking of holding onto peoples’ funds, why not just do a free sign-up waitlist that gets reserved checkout on a first-come, first-served basis, as the inventory becomes available?

With such a disparity between demand and supply (at least 3:1), the odds are stacked against any one hopeful customer successfully securing a Nugget. Plus, would-be customers aren’t only competing with other aspiring Nugget families, but also malicious re-sellers taking advantage of our demand/supply situation, hoping to quickly flip the products in online marketplaces at double, triple, or sometimes quadruple the price. We believe any system that doesn’t charge upfront would only encourage more people to sign up under false pretenses. Talk about a great business venture: no money down, and a guaranteed profit on the back end. Charging at the time of purchase is our way of filtering out the people who don’t actually want the Nugget from the people who do. Still, this doesn’t completely snuff out the reseller problem…

There isn’t an inventory problem, there’s a reseller problem. There’s plenty of stock, it’s just all on eBay! What are you going to do about resellers?

We’ve seen sentiment suggesting that there were enough Nuggets to go around, it’s just that resellers took half of them. From our own investigative work across Facebook, eBay, and other sites, we can assure everyone that the number of Nuggets listed for resale, even estimated liberally, doesn’t begin to make up the current difference between Nugget supply and demand. Even if a thousand Nuggets were purchased by resellers today, that wouldn’t put a dent in the number of genuine, hopeful families who missed out.

Still, resellers are a serious issue for us. Our Terms & Conditions make it clear: “We reserve the right to limit or prohibit orders that, in our sole judgment, appear to be placed by dealers, resellers or distributors, or for the purpose of illegal gambling activities, such as raffling.” Our Customer team actively seeks out and cancels fraudulent orders that are fueling the Nugget flipping frenzy, and will be stepping up its efforts in doing so over the weeks and months ahead. To be clear: we do not support the Nugget resale market, which takes advantage of our supply shortage to price gouge our customers.

So this isn’t all just a marketing scheme to create hype?

Definitely not! But just to be sure, let’s walk through all the things that it actually is instead:

  • Space in our current facility: the building is the size that it is, and there’s only so much foam and fabric that can go in and out of it in a single day.
  • The buildout of our next factory, eight times the size of our current one; a nearly year-long process that we are hoping to complete this fall
  • Resellers preying on the supply/demand situation and cannibalizing potential genuine sales; we cancel their orders, but they are still temporarily taken out of circulation and unavailable for a family to buy
  • A global pandemic that leaves us with half our usual headcount per shift, and roughly half the production capacity we would otherwise have

So can we do anything about it, besides twiddle our thumbs until our new facility finally opens up? We think so. Here’s a start:

  • Cart limits: Today we limited customers to 2 Nuggets and 2 Cover Sets per household, and thousands of families still missed out completely. Until supply and demand are more in-line with each other, we’re stepping up the cart limits even further, to 1 product per household, total, per release. That means 1 Nugget, 1 Cover Set, or 1 Pillow Pack. Orders placed by different people but going to the same household will be canceled.
  • Resellers: We’re expanding our efforts to shut down scammers, resellers, and dealers who are taking advantage of the situation to price-gouge Nugget families. We won’t just be canceling orders of resellers who are brought to our attention by customers, but actively seeking them out on our own and preemptively canceling their orders.
  • Bot prevention: We already have fraud prevention measures in place, like the boxes that needed to be checked on the site today before you could Add to Cart, but we can do more. For future releases, you may see new processes in place during checkout. They may slow you down, but keep in mind, everyone else is having to do them too. They are there to make sure you’re a human.

But by far, the biggest thing we can do is prepare our new facility to be as sharp, as safe, and as efficient as possible for accepting and shipping out Nugget orders this year and into the future. We can’t wait to share more about it as it takes shape. In the meantime, we ask for your patience and understanding, for just a few more months, while we make the magic happen.

Class dismissed.

•••• 

PS — In the midst of a trying release day that left a lot of customers out in the cold, our Facebook reviews took a bit of a beating. If you’ve had a lovely experience with our Customer team in the past few weeks, or simply received a tip-top condition Nugget in the mail ahead of its shipping schedule, we’d love for you to share that on our page. Thanks so much for your continued support, patience and understanding. We're very grateful for this community.