The largest retailers have too many products and not enough buzz. That’s a problem heading into the Christmas shopping season.
Big box giants like Best Buy, Bed Bath & Beyond and others have experienced bloated inventories as well as falling sales. Meanwhile, retailers like Amazon and Dollar General have seen an uptick in inventory value through this summer, according to their latest earnings reports — even as Wall Street begs companies to stop stocking up.
Companies had difficulty maintaining constant inventory levels. Unusual consumer spending on par2020-2021 This retail mania came to an abrupt halt earlier in the year. Richard Hayne, CEO Urban Outfitters, called it “The Urban Outfitters”Retail. “a sonic boom of inventory.”
On first-quarter earnings calls, these businesses admitted that they had continued to build up their inventories as if the consumer shopping spree of the earlier pandemic would continue unabated. The major retailers have been trying reduce inventory. High-priced tacticsCancelling orders, slashing prices, or returning low-selling items to storage are all options.
However, it’s proved difficult for retailers to totally stop the inventory buildup. Many top retailers reported that they were successful in stopping inventory buildup during their second quarter earnings. Increased The three previous months are compared with their merchandise inventories:
|Variations in merchandise inventories between Q1-Q2|
|Bed Bath & Beyond||1.97%|
They also had to decide if they were able to dump inventories during quarter 2. stores get even more packedStock-stuffed retailers still struggle with negative sales growth, or middling.
|Percentage Change from Q2 2021 to Q2-2022|
|Bed Bath & Beyond||Inventory||12.54%|
It’s very hard to get an inventory situation like this under control. Distributors and suppliers place orders months in advance. Some smaller retailers might not be as efficient. still understocked from the retail craziness of 2020 and 2021, big box stores were able to get their orders in months ago — just in time for Consumer demand to fall.
The bullwhip effect also accelerates the current inventory crisis. Here’s how it works:
Let’s say you are the manager of a metro Indianapolis outlet of Rachel’s Amazing Stuff, a venerated retail conglomerate. You predict that 10 people would purchase an air fryer over the next month. To be safe, 20 air fryers are purchased from your distributor. Given the past two years, it’s a fair bet more people will buy more air fryers than you anticipated and, if not, you can stock some away for the impending holiday season.
So the distributor, Premack’s Crap, gets its order in for the 20 air fryers. The distributor orders 20 air fryers. 40 The retailer increased its order for air fryers. The distributor’s owner perhaps remembered 2021, when it had to pay for expensive airfreight to source goods. The distributor will place bulk orders It is better to start early to make sure it has everything it needs for next year.
Finally, the order for 40 fries is shipped to MODES manufacturing LLC. It decides that 80 fryers are the best option. MODES Manufacturing is a hot business. That cycle, my friends, is how you end up with 80 air fryers when the demand forecast was for just … 10. (And, by the way, everyone’s stimulus checks ran out, so actually no one is going shopping for air fryers.)
This might help to explain why you can shop at Bed Bath & Beyond. Enjoy a 50% Discount on a Luxury Air Fryer. (By the way, in the second quarter of 2022, compared to the same period last year, Bed Bath & Beyond had 12.5% more inventory — but sales have declined by 25%, according to its quarterly financial filings.)
This will be a bizarre experience ‘peak season’Target, Walmart and Amazon are just a few of the similar retailers
It’s not easy to plan orders in retail, but it is difficult. Phil Levy, chief economist at freight forwarder Flexport, highlighted these facts. confusion around mortgage rate hikesThis is one factor that can make things more difficult. Wayfair and Pottery Barn should order more couches and beds to their warehouses to ensure that mortgage rates remain affordable for consumers. Even the sharpest forecasters, though, aren’t certain of anything.
Early fall — aka right now — is theoretically “peak season”Major retailers have huge containers full of stuff (glorious items!) You can usually purchase November and December items by bringing your stuff into the U.S. ports between October and September.
Yet it’s not even clear If Levy stated, peak season activities would be enjoyed by the people. Retailers are afraid, as evidenced by the port of Long Beach and Los Angeles. They have been overwhelmed over the years by televisions, exercise bikes and other electronic gadgets. They are now experiencing the lowest weekly maritime exports since June 2020. This is a time when they should have steady imports as they prepare to shop for the holidays.
The collapsed spot rates for truck movements is another indicator of a weakening demand. Except for diesel prices, rates have fallen by 37% since the start of the year. FreightWaves National Truckload Index. Deutsche Bank’s Amit Mehrotra wrote in an Aug. 31 note that this freight slowdown is indeed connected to the retailers’ wish to have less stuff in their warehouses.
Transportation aside … let’s get back to the weird Christmas.
John David Rainey was the Walmart CFO. “The giant is here!” “well-positioned”For the holiday shopping season 2022. Christina Hennington, chief growth officer at Target, said the company’s hearty growth in toys and entertainment was a promising sign for the holidays. And Urban Outfitters’ Hayne too reported renewed interest in gifts and entertainment — at full price.
It’s a tricky battlefield. Let’s pretend, for a moment, that you’re the owner of Rachel’s Toy Emporium. Your most popular months include October, November, December. Because you don’t know when customers will be buying toys, your options include bringing in the orders either early or late.
If you’re too early, Levy said, you need to store your wares for months. And even more frustrating, you’re in the position of having to forecast what you need in stores even more in advance than usual. Because there’s little consensus on what’s happening with the economy, such forecasting is difficult.
And if you’re too late, Levy said you need to liquidate your inventory or spend extra cash to warehouse it all.
“You can get badly penalized for being wrong in either direction,”Levy stated. “If you underestimate demand, you can’t meet those sales. If you overestimate demand and open a factory you never use, you’re in trouble. There’s no safe harbor.”