‘We’ve never seen anything like it’: US retailers compete to clear inventory

An air fryer reduced from $149 to $110; a 10% off trampoline and a set of star kids pajamas for $9 instead of $12: The red “rollback” signs weren’t hard to find this week at the nearest Walmart Supercenter to headquarters retailer headquarters in Bentonville, Arkansas.

One mile from the small town square where Sam Walton opened his five-cent store in 1950 and began building the world’s largest retail empire, the discounts tell the story of an American sector of retail faces historical difficulties in forecasting both supply and demand.

This week, the $350 billion company issued its second profit warning in just over two months, telling investors that soaring inflation, particularly in food and fuel prices, was affecting the ability of its customers to afford other goods.

Walmart’s growth has been built on aggressively competitive pricing and enticing promotions it calls “rollbacks.” But it now has to resort to more markdowns than expected, including to move clothing inventory. At the South Walton Boulevard store this week, bright yellow balloons marked “clearance” swung more than $4 worth of Bentonville Tigers t-shirts and $11 worth of sweatshirts.

Walmart’s statement hit its shares and those of rivals from Amazon to Home Depot, but it’s far from alone in warning that sudden shifts in consumer spending are wreaking havoc on inventory.

Target warned in May that it would have to reduce products and cancel orders to eliminate excess inventory in categories ranging from televisions to outdoor furniture. Bed Bath & Beyond, Macy’s and Gap admitted to having similar inventory issues in recent months.

Consumers aren’t just worried about having less money to spend after filling their fridges and cars, retailers say: More of their discretionary spending is on experiences they missed earlier in the coronavirus pandemic, such as travel and dining out, rather than on clothing, furniture or appliances.

Nominal vs actual food consumption (adjusted for inflation)

Unpredictable demand, especially among the most cash-strapped consumers, is only part of the challenge, however. Several companies, fearing a repeat of the supply chain delays that burned them last holiday season, stocked up early this year.

Mattel, the maker of Barbie dolls and Hot Wheels cars, announced last week that its inventory had risen 43% year on year, for example, while rival Hasbro also had unusually high inventory levels as it was stocking up for the high season from toymakers.

“Importers no longer trust supply chains,” said Zvi Schreiber, managing director of logistics booking service Freightos. “Traders do not take any risk. If they can afford the inventory, they are stocking up now for the shopping season.

Significant backlogs at U.S. and Chinese ports delayed shipments from many retailers last fall, leading to higher transportation costs and some shortages. Late deliveries turned into excess inventory that retailers had to offload cheaply in the spring or store for resale in December.

Shipping rates have fallen from last year’s peak, but are still well above pre-pandemic levels. Last week, it cost an average of $6,593 to ship a 40-foot container from Asia to the US West Coast, according to Freightos. That’s down two-thirds year-on-year, but still more than four times what importers paid in 2019.

Few retailers are betting on congestion ending soon as labor shortages have perpetuated delays, unions remain in negotiations with California ports and social unrest threatens truck and rail disruptions .

Yellow clearance balloons at the Walmart store on South Walton Boulevard in Bentonville, Arkansas

Yellow clearance balloons at the Walmart store on South Walton Boulevard in Bentonville, Arkansas, a mile from where founder Sam Walton opened his five-cent store in 1950 © Andrew Edgecliffe-Johnson/FT

Retailers who bring in products well in advance of the holiday season face scarce and costly storage. Prologis, the warehouse leasing company, said last week that its average occupancy rate rose from 96% to 97.6% while rents for newly leased US warehouses rose 54% year-on-year.

The warnings from Walmart and other retailers raise questions about how much content from these warehouses will be sold as expected.

What holiday demand will look like is changing, said Vaughn Moore, chief executive of logistics firm AIT, noting that two of its large retail customers have scaled back their sales forecasts ahead of the peak shopping period. annual.

“The problem is that as the holiday season approaches, they have the wrong stock in the warehouse,” he said, predicting that “slash and burn” sales would be needed to eliminate old stock and make room for new goods.

Consumers are sending mixed signals about their desire to spend. The University of Michigan’s Consumer Confidence Index hit a 70-year low in June, and Best Buy said this week spending on consumer electronics had “decline further” since then. may.

Still, strong results from Harley-Davidson and LVMH, owner of luxury brands Louis Vuitton and Tiffany, suggest sales of high-end products remain robust.

These mixed signals have put more attention than usual on the upcoming back-to-school shopping season, which could provide a clearer picture of how consumers will approach the bigger holiday season.

A National Retail Federation survey suggests that the typical household will spend 2% more than last year on notebooks, pencils and other supplies, but retailers’ total purchases will be slightly lower than last year, from $37.1 billion to $36.9 billion, even before adjusting for inflation.

Promotions like 50-cent flyers in Walmart’s back-to-school displays may be less helpful in determining whether retailers can meet this year’s inventory challenge than whether inflation starts to ease, Ethan noted. Chernofsky, vice president of marketing at data company Placer.ai.

But the current combination of historically high inflation and historically low unemployment is a situation that even retailers in Walmart’s vintage have no playbook for, said Stephanie Cegielski, vice president of research for the ICSC shopping center group.

“The struggle for everyone right now,” she said, is that “we’ve never seen anything like it.”

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