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

The deep fryer dropped from $149 to $110; A 10% off trampoline and star-studded children’s pajama set for $9 instead of $12: It wasn’t hard to find red “kickback” signs this week at the Walmart supermarket closest to the retailer’s headquarters in Bentonville, Arkansas. .

A mile from the small town square where Sam Walton opened his fifty cent store in 1950 and began building the world’s largest retail empire, discounts told the story of the American Retail an industry that has historically struggled to forecast both demand and supply.

This week, the $350 billion company released its second profit warning in just two months, telling investors that rising inflation, especially in food and fuel prices, is affecting its customers’ ability to buy other goods.

walmart growth was based on aggressively competitive pricing and enticing promotions, which he calls “kickbacks”. But now he has to resort to more markdowns than planned, especially to redistribute clothing stocks. This week at a store on South Walton Boulevard, bright yellow balloons marked “tolerance” hovered over $4 T-shirts and $11 Bentonville Tigers sweatshirts.

Real food intake

Walmart’s announcement hit its stock and those of rivals from Amazon at Home Depot, but that’s far from the only warning that sudden changes in consumer spending are taking a toll on inventory.

In May, Target warned that it would have to cut product prices and cancel orders to get rid of excess inventory in categories from TVs to outdoor furniture. Bed Bath & Beyond, Macy’s and Gap have all admitted to similar inventory issues in recent months.

Not only are consumers worried that they have less money left to spend after they fill up their refrigerators and cars, retailers say: Much of their discretionary spending is going towards experiences they missed earlier during the coronavirus pandemic, such as , travel and eating out, not clothing, furniture, or appliances.

Nominal and real (inflation-adjusted) food consumption

However, unpredictable demand, especially among the most cash-strapped consumers, is only part of the problem. Several companies, fearful of a repeat of the supply chain delays that scorched them over the past holiday season, began stocking up earlier this year.

Mattel, maker of Barbie dolls and Hot Wheels cars, said last week that its inventory was up 43% year-on-year, for example, while rival Hasbro also had an unusually high level of inventory as it stocked up in high season for toy manufacturers.

“Importers no longer trust supply chains,” explained Zvi Schreiber, chief executive of Freightos, a logistics booking service. “Retailers take no risks. If they can afford the inventory, they are already gearing up for shopping season.”

Last fall, extensive delays at US and Chinese ports caused many retailers to delay shipments, pushing up freight costs and causing some shortages. Late deliveries turned into excess inventory that retailers had to sell cheap in the spring or stockpile for resale in December of this year.

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

Few retailers are betting the congestion will end any time soon as labor shortages perpetuate delays, unions continue to negotiate with California ports, and worker unrest threatens to disrupt trucks and railroads.

Yellow balloons at a Walmart store on South Walton Boulevard in Bentonville, Arkansas.

A Walmart store on South Walton Boulevard in Bentonville, Arkansas is dominated by yellow clearance balloons, a mile from where founder Sam Walton opened his fifty-cent store in 1950 © Andrew Edgecliffe-Johnson/FT

Retailers that ship well in advance of the holiday shopping season have to contend with scarcity and costly storage space. Prologis, a warehouse leasing company, said last week that its average occupancy rose from 96% to 97.6%, while rents for newly leased warehouses in the US rose 54% year-on-year.

Warnings from Walmart and other retailers raise questions about how much of the contents of these warehouses will be sold as planned.

What holiday demand will look like is constantly changing, said Vaughn Moore, chief executive of logistics firm AIT, noting that two of his major retail clients have lowered their sales forecasts ahead of a peak annual shopping period.

“The problem is if we start the holiday season, they will have the wrong stock in stock,” he said, predicting that “quick” sales would be needed to clear old stock and make room for new items.

Consumers send mixed signals about their desire to spend. The University of Michigan consumer sentiment index hit its lowest level in its 70-year history in June, and Best Buy said this week that consumer electronics spending has fallen. “melted even more” from May.

Continued strong results from companies such as Harley-Davidson and LVMXowner of luxury brands Louis Vuitton and Tiffany, suggests that upscale sales remain strong.

These mixed signals have drawn more attention to the upcoming school shopping season than usual, which could provide a clearer indication of how consumers will feel about the larger holiday season.

A survey conducted by the National Retail Federation shows that the typical household will spend 2% more on notepads, pencils and other supplies than last year, but total retailer revenue is down slightly from last year, from $37.1 billion dollars to 36.9 billion dollars, even earlier. adjusted for inflation.

Promotions, such as 50-cent folders in Walmart’s school windows, may be less important in determining whether retailers can deal with inventory this year than whether inflation starts to ease, said Ethan Chernofsky, Vice President store marketing president data from Placer.ai.

But the current combination of historically high inflation and historically low unemployment is something even Walmart’s vintage retailers can’t handle, says Stephanie Cegielski, vice president of research for the ICSC mall group.

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