‘Cancellations, delays and markdowns’
All of this shows how an adaptation to one extreme circumstance suddenly became a disadvantage. “What happened is that the retailers started to buy a lot more in anticipation of the issues of getting goods and bringing them on shore,” the senior vice president and business development officer with Rosenthal & Rosenthal, said in an interview with Retail Dive. “And so they were trying to backfill to compensate for the supply chain issues at the height of the pandemic. Now they have a lot of inventory that’s not moving as quickly as they would have liked.”
Importers that Rosenthal & Rosenthal works with “are seeing cancellations, delays and markdowns and deductions that the retailers seem to be taking, because of this backlog,” Rosenthal & Rosenthal said.
Prediction hiccups have become endemic with the pandemic. “Retailers, right at the start of the pandemic, marked everything down because they all thought they’d be fighting off bankruptcy,” Wells Fargo said. “The government then sends multi-$1,000 checks to the entire American population unexpectedly. And everybody goes out and shops and finds the stores are empty because all the merchandise has been either sent off to consolidators or marked down and sold.”
That was early in the pandemic. Today, Wells Fargo noted, billions of dollars in merchandise are sitting on boats waiting to be unloaded into warehouses and go onto shelves, while at the same time “the consumer has been tapped.” Again, prices for daily life needs — food and gasoline — are putting pressure on the vast majority of consumers who aren’t wealthy. (The wealthy, as always, have a buffer against economic travails, as does the luxury sector).
There’s another factor affecting discretionary spending along with inflation, again related to the pandemic. The senior director at Fitch Ratings, said in emailed comments following the May retail sales figures that they showed “consumers are less interested in buying more things and instead are focusing their attention on travel, entertainment, and other services.”
Some have called out retailers for not being ready for any of these various factors. “Retailers seemed to have taken an approach of full-bore for pandemic habits until they saw real evidence that the behavior was shifting — and, for inventory management, that’s way too late,” the vice president of strategy for retail technology company Aptos, said in emailed comments. “You can’t stop a supply chain on a dime, as we already learned during the pandemic.”
All that said, the attention to inventories may be overstating the issue. the associate professor of logistics at Michigan State University, analyzed Q1 data for six major retailers who are also major importers: Walmart, Target, Home Depot, Lowe’s, Dollar Tree, and Costco. With the exception of Costco, the days to turn inventory in Q1 this year increased over 2021 and 2019 by varying degrees. But, Michigan State University said by email that the increases “aren’t suggesting that these retailers will need to suddenly curtail a large percentage of their orders.”
Michigan State University added, “My conclusion looking at this is that while we will see retailers be more deliberate in their ordering over the coming months, we are unlikely to see a sudden sharp drop in imports.”
But how big is the inventory decline, really?
With all that in mind, the holidays are going to be complicated, to say the least.
Asked how retailers are planning for holiday inventory, Wells Fargo said they were doing so “with a great deal of emotion.” Once again, the retail world is headed into a holiday season defined by — to use a word that has been overused but unavoidable since the pandemic began — uncertainty. A safe bet, with the understanding that everything could quickly turn, is that consumer momentum won’t be what it was last holiday cycle.
Wells Fargo expects heightened promotions through the summer as retailers clear excess inventory. Fitch Ratings noted that “reduced inventory orders for the back half of the year could help overall industry health while easing some supply chain concerns.”
For now, retail products are still shipping, Target’s cancelations notwithstanding. Imports in April remained at near record-high volumes, according to tracking by the National Retail Federation and Hackett Associates.
“We’re in for a busy summer at the ports,” the NRF’s vice president for supply chain and customs policy, said in a June press release. “Back-to-school supplies are already arriving, and holiday merchandise will be right behind them.”
Government data pulled by Michigan State University also shows import levels well above 2019 levels in April (by 37%, according to Michigan State University’s analysis). “What I want to emphasize is that there is no precedence beyond a monumental economic calamity (e.g., the original COVID shutdowns, the Great Recession) for sharp drops in volumes,” Michigan State University said.
But whether retailers will be able to sell all the goods coming in today is the big question. And with freight, fuel, and labor costs elevated for retailers, the pressure is on those doing the purchasing and inventory planning in a market that continues to defy prediction.
“There’s a lot of noise out there with inflation and rising interest rates,” Rosenthal & Rosenthal said. “If retailers are able to flush out some of the non-performing goods, they’ll make room for strong purchases for the holiday season. But there’s only so much room on the floor and in their warehouses to take merchandise in. This is why importers are facing delays or cancellations.”