As the holiday season approaches, retailers are preparing for a busy time. The problem? They’re not sure what to sell.
Even as the Delta variation and supply-chain delays add uncertainty to restocking operations, retailers are stockpiling up on products for the Christmas season in a strong display of optimism in customer demand.
Best Buy Co., Target Corp., and other major retailers are stockpiling more inventory compared to last year’s pandemic-depressed levels, with inventories in some instances exceeding 2019 estimates by double digits.
Businesses are jockeying for product and vessel space to avoid missing crucial fourth-quarter sales as a result of Covid-related manufacturing closures in Asia and worldwide shipping delays, a competition that favors deep-pocketed big-box stores over smaller rivals.
Walmart Inc., for example, saw its global stocks recover this summer after falling in the same time of 2020 compared to pre-pandemic levels, as the firm ramped up attempts to fulfill high customer demand, including chartering boats to circumvent ocean shipping bottlenecks.
“We were far too light in stores and on the e-commerce side at the end of the second quarter in 2020,” Walmart CEO Doug McMillon said during an investor conference on Sept. 9. “So, if we could obtain it, we’d take even more inventory.”
In the quarter ending July 31, Walmart’s consolidated inventory totaled approximately $47.8 billion, up 16 percent from the previous quarter and up 8% from the same quarter last year. According to a spokesperson for Walmart, inventories in the United States decreased by 4.6 percent during the fiscal second quarters of 2021 and 2020.
Despite fluctuations in demand, the businesses are storing up since coronavirus infections in areas of the United States have risen due to the Delta strain. Following a sales drop in July, retail sales in the United States recovered in August as consumers spent more in shops and online.
The drive to get more products into shops and warehouses comes following a decrease in inventory over the last year, as merchants slowed purchases in the early months of the epidemic in 2020 and then encountered major supply-chain backlogs as they tried to replenish this year.
The inventory-to-sales ratio among U.S. merchants dropped to its lowest level since 1992, according to Census Bureau data, and it has only marginally increased since then, despite record levels of container imports into the country.
Strong consumer goods sales and inventory shortages in particular sectors, such as cars, automotive parts, and clothing, according to Jason Miller, an assistant professor of logistics at Michigan State University’s Broad College of Business. According to him, production in those sectors has fallen well short of demand.
According to Bureau of Economic Analysis statistics, stock of such goods has decreased significantly since 2019, but supply of general merchandise and home improvement shops have increased during the same time.
While some niche clothing shops have kept inventories low and increased profit margins by avoiding discounts, larger mass-market retailers are leveraging their buying power with transporters and suppliers to purchase as much goods as possible.
Target’s inventory increased by more than 26% to almost $11.3 billion in the most recent quarter, placing the store in a stronger position and giving it greater confidence heading into the holidays than previous year, according to the company.
Even so, empty shelves occasionally appear, either because sales exceed the retailer’s expectations or because “the vendors themselves are facing constraints in their ability to deliver product,” according to Target Chief Operating Officer John Mulligan during the company’s second-quarter earnings call last month.
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Executives at BJ’s Wholesale Club Holdings Inc. and Kohl’s Corp. indicated in second-quarter earnings reports that they had been rushing to line up goods as well. In an earnings call on Aug. 19, BJ’s Chief Executive Robert Eddy stated, “We need to play to win.” “As a result, we need to be as active as possible with our suppliers and compete for inventory.”
As prices rise due to limited shipping capacity, smaller rivals are frequently at a disadvantage when negotiating with suppliers or vying for space on container ships.
According to Joseph Feldman, a senior managing director at Telsey Advisory Group who specializes on retail, if a small company needing to transport a few sea containers went up against a major store seeking to transfer considerably more goods, the bigger order would win. Smaller businesses, he said, “don’t have the size.”
Big inventory investments may backfire if businesses wind up with an overabundance of unsold merchandise.
According to analysts, the danger is low since, even if pandemic shutdowns continue, customers would likely return to shopping rather than eating out or vacationing.
“I believe the greater risk is not having enough inventory versus having too much,” said Rod Sides, the U.S. retail and distribution practice leader at Deloitte LLP. “We anticipate a much larger Christmas season.”
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