Excess inventories force US retailers to cut prices, offer big discounts this holiday season
This article originally appeared on Channel News Asia on December 16, 2022.
Analysts said rising interest rates and recession fears cooled consumer demand earlier this year, fuelling an increase in inventories for retailers.
“Last year, there wasn’t enough inventory and so retailers in particular, they stockpiled inventory so that they didn’t run into shortages,” said Transportation Insight Holding Company chief strategy officer John Haber.
“As they were stockpiling inventory, the economy started declining very rapidly.”
Many brands, including Nike, are offering big discounts over the holiday period to clear warehouse space.
They are hoping that strong sales will bring some festive cheer, despite the discounts eating into their bottom lines.
Hurting Profitability
At holiday decoration distributor Kurt S. Adler, around 90 per cent of goods sold come from China. Supply chain issues last year created significant challenges, said the family-run firm.
The company’s co-president Clifford Adler said: “They just didn’t have enough people working at the ports, it was very difficult getting truckers. So that all contributed, and then you had the zero tolerance in China of COVID.”
A year on, some supply chain issues have abated. Prices for shipping containers have fallen by about two-thirds compared to a year ago, said the company.
But fears over lockdowns in China persist and costs still remain around twice as high as 2020.
Mr Adler said: “It has created a situation where we have a lot more inventory than we normally would have at the end of the year because of the trouble getting it in, in a timely fashion.”
Carrying excess inventory ties up the working capital of businesses, and the deterioration of stock over time can hurt their profitability, said observers.
Some of the biggest brands are already feeling the pinch.
In its latest quarterly earnings report, Nike announced its North American inventories increased 65 per cent compared to a year ago.
Brisk Sales to Continue
Retailers have been impacted across the board, with sellers of electronics, apparel and household goods among those more heavily affected, said analysts.
Max Retail, which helps brands sell unsold inventory through global network retailers, said these retail patterns are cyclical but conditions are currently ideal for shoppers.
All this at a time when red-hot inflation and rising interest rates have hurt consumer spending power.
This year, the Cyber Monday event alone pulled in more than US$11 billion online in a single day, setting a new record. And brisk sales are expected to continue this holiday season.
Max Retail chief executive officer Melodie van der Baan said: “I do believe there’s a lot of good deals to be found over the next couple of months, but you will not see these good deals in the spring time.
“The excess inventory is now. Absolutely, it’ll end up in the off-price market but not until next fall.”