“We have never seen anything like it”: US retailers compete to free up stocks

A reduced air fryer from $ 149 to $ 110; A 10 percent discounted trampoline and star-studded kids’ pajamas set priced at $ 9 instead of $ 12: Red “rollback” signs weren’t hard to find this week at the Walmart Supercenter closest to the retailer’s 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 told the story of a US retail industry facing hardship. historical in predicting both supply and demand.

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

Walmart’s growth has been built on aggressively competitive pricing and the enticing promotions it calls “rollbacks.” But now he has to resort to more reductions than expected, particularly to shift inventory into clothing. At the South Walton Boulevard store this week, bright yellow “clearance” balloons were placed on $ 4 T-shirts and $ 11 Bentonville Tigers hoodies.

Real food consumption

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

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

Consumers don’t just worry about having less money to spend after filling their fridges and cars, retailers say – most of their discretionary spending is about experiences they missed earlier in the coronavirus pandemic, such as traveling and eating out. rather than on clothing, furniture or appliances.

Nominal vs real food consumption (adjusted for inflation).

However, unpredictable demand, particularly among cash-strapped consumers, is only part of the challenge. Several companies, fearing a repeat of the supply chain delays that burned them during the holiday season, stocked up earlier this year.

Mattel, the maker of Barbie dolls and Hot Wheels cars, reported last week that its stocks rose 43% year-on-year, for example, while rival Hasbro also had unusually high inventory levels as it was stocking up for the. high season of toy manufacturers.

“Importers no longer trust supply chains,” explained Zvi Schreiber, managing director of Freightos Logistics Reservation Service. ‚ÄúRetailers take no risk. If they can afford the inventory, they are stocking up now for the shopping season. ”

Large backlogs in US and Chinese ports delayed shipments from many retailers last fall, resulting in increased freight costs and some shortages. Delayed shipments turned into excess inventory that retailers had to offload cheaply in the spring or put in storage for resale in December.

Shipping rates have fallen from last year’s peak, but are still far above pre-pandemic levels. Last week, according to Freightos, it cost an average of $ 6,593 to ship a 40-foot container from Asia to the west coast of the United States. This is two thirds less on an annual basis, but still four times higher than what importers were paying in 2019.

Few retailers are betting on an end to congestion any time soon, as labor shortages perpetuated the delays, unions continue to negotiate with California ports, and labor unrest threatens truck and railroad disruptions.

Yellow 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, one mile from where founder Sam Walton opened his five-cent store in 1950 © Andrew Edgecliffe-Johnson / FT

Retailers who carry products long before the Christmas shopping season face scarce and expensive storage. Prologis, the warehouse leasing company, said last week that its average occupancy rate increased from 96% to 97.6%, while rents for new US warehouses rose 54% year-on-year.

Warnings from Walmart and other retailers raise doubts about how much content from those warehouses will be sold as expected.

The demand side of the holidays is constantly changing, said Vaughn Moore, chief executive of logistics company AIT, noting that two of its large retail clients have scaled back their sales forecasts ahead of the annual peak purchasing period.

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

Consumers are sending 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 this week said consumer electronics spending has “softened further” since May. .

However, strong results from Harley-Davidson and LVMH, owners of the luxury brands Louis Vuitton and Tiffany, suggest that sales of high-end products remain solid.

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

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

Promotions like 50-cent satchels in Walmart’s back-to-school displays may be less of a factor in determining whether retailers can tackle this year’s inventory challenge than whether inflation starts to decline, Ethan noted. Chernofsky, vice president of marketing for the data company Placer.ai.

But the current combination of historically high inflation and historically low unemployment is one that even vintage Walmart retailers don’t have a playbook, said Stephanie Cegielski, vice president of research for the ICSC shopping mall group.

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

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