Retailers Have Too Much Inventory

Predicting the demise of Sears & Kmart since 2017!
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Alpha8472
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Retailers Have Too Much Inventory

Post by Alpha8472 »

Retailers now have too much inventory. Now that the supply chain has eased, stores have received merchandise earlier than anticipated. There is too much merchandise in the stores. They may have to discount the items and sell them for less. With inflation going up, this is an unexpected surprise.

Gap says that a 34% spike in inventory is due to poor sales at Old Navy.

During the pandemic stimulus payments made consumers flush with cash to spend. Retailers ordered way too much inventory. Now that has come back to haunt retailers. Consumers are buying less clothing, TVs, high end appliances, etc. Retailers will have to discount more items, but the cost of labor and retaining employees has gone up. This will limit these discounts and promotions.

https://finance.yahoo.com/news/focus-u- ... 42309.html
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Re: Retailers Have Too Much Inventory

Post by storewanderer »

As we have seen in the past, when gas is $6+ a gallon, people buy less other stuff. I don't think the retailers saw this coming, they bought as if there would be a recovery from COVID. At this point in business it is get whatever you can out of people now. Look at the travel industry and what flights cost and what hotels are charging; it is unreal expensive yet people seem to be paying it. But for discretionary retail purchases people have a lot of options including trading down or not buying at all and it is easy to make changes to discretionary retail purchases that cut their cost so you can allocate the funds to other things that have increased in price.
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Re: Retailers Have Too Much Inventory

Post by buckguy »

Stimulus checks haven't been a factor in ages and wouldn't affect current inventories. Also, people who could skip purchases of major goods used that money to pay down debt rather than buy goods.

The supply chain problems have gradually resolved and the real problem is that discretionary spending has moved from goods to services https://www.washingtonpost.com/business ... -services/ which has happened more quickly than expected. This is shaping up to be a good summer for travel, with leisure travel compensating for the slow return of business travel. Restaurants are doing well and I've been noticing new ones open-up. I'm surprised to see stores like Target marking down goods like tvs which could be kept in storage rather than marked down right away---perhaps its model year and subsequent orders that they can't cancel. Beyond that "just in time" practices were part of the shortages, because ordering systems no longer allowed the slack they once did. Now that there are gluts of things, there's the opposite problem of not knowing what to do with slack.

I would imagine that effects of gas prices have been buffered by the large number of people working from home who are no longer commuting as much (or at all). The numbers of people who won't go back to a normal workplace fulltme or at all promises to be large: https://www.pewresearch.org/social-tren ... n-america/
The focus has been on the decline of jobs in downtown areas but this sort of thing is hitting suburban sprawlburgs--the press just happens not to work there. The building where I work is empty as are numerous nearby buildings. Downtown office districts have transportation options. There are exceptions like the Tysons Corner area outside DC (biggest concentration of jobs in the area and being reshaped by Metro access and the obsolescence of old commercial buildings) but suburban job hubs (which usually support mall and strip hubs) often are more car dependent and congested.
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Re: Retailers Have Too Much Inventory

Post by ClownLoach »

Do they have too much inventory?

Or the wrong inventory?

Based on what I'm seeing - many chains still have too much of the wrong inventory. Not enough of what is selling. And odd shortages that still are perplexing but must really be causing sales disruption.

Currently shopping for appliances for our new place. Three months ago nothing was in stock anywhere. Now you can find refrigerators, washers, and stoves that will be delivered tomorrow. But dishwashers and dryers? Good luck! Dryers are just plain out of stock, and dishwashers are backordered until October. So if you were looking for a matching washer and dryer set - the odds are you won't be able to get it except in the cheapest low end brands. And stock up on Dawn dish soap and towels because you're going to be doing a lot of hand washing. But at least you can wash the towels in your nice new high efficiency washer before you put them on an old fashioned laundry line to air dry!

Was at Ikea today and the gross majority of the furniture displayed in the showroom is out of stock because of the component nature of their business. When you see many items at Ikea there isn't one SKU - there is a list of about 10 items that you have to go get from the warehouse side of the store then assemble the whole thing at home. I guess that in the past this has helped them keep costs down if "board 01.234.5678" could be used in both a desk and a bookcase. But you find that nearly everything on display has one or two components that are out of stock which renders most of the store completely useless. They must be losing millions despite a very, very full store and a still jam packed warehouse that has racking that is higher than most distribution centers I have visited over my career. They've got lots of inventory, but not the right inventory...

Too much of purchasing decision making for retail chains has moved from people to machines. Warehouse Management Systems are supposed to analyze the trends and order the appropriate amounts of merchandise for the stores. They can be adjusted with some human input, but usually that doesn't happen until there is a problem and then the situation spirals out of control. Couple that with Wall Street demanding impossible levels of efficiency in manufacturing where facilities should have as close to 99.9999% utilization at all times with zero slack space - and then you see national disasters like the horrible baby formula shortage that has already led to several deaths just because a single factory went offline but then all the other competitors did not have the ability to ramp up to take share. So although there is no "wasted capacity" in production - there is no ability to increase production either to keep up with trends. It is as if Wall Street does not understand Supply and Demand so they have created artificial supply caps in an effort to have the highest possible margins, resulting in massive missed opportunities, shortages and inflation.
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Re: Retailers Have Too Much Inventory

Post by bryceleinan »

I think it depends on the retailer. For example, we have a new Ace Hardware in Dayton that’s owned by a much larger store in Fallon. Louie’s was supposed to open in March, however, it got pushed out to May 19th because they couldn’t get inventory. The store only has 80% of its counterpart, and opened with 70% of its slated inventory.

Talking to the owner, he said it had to open, despite Ace telling him that it would take several months to become fully stocked. As such, there are a couple of product lines (Stihl for one example) that weren’t finished before opening.

I’ve noticed Lowe’s and Home Depot having the same problem, so I’m guessing it was a sector-wide issue.
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Re: Retailers Have Too Much Inventory

Post by storewanderer »

ClownLoach wrote: June 5th, 2022, 8:42 pm Do they have too much inventory?

Or the wrong inventory?

Based on what I'm seeing - many chains still have too much of the wrong inventory. Not enough of what is selling. And odd shortages that still are perplexing but must really be causing sales disruption.

Currently shopping for appliances for our new place. Three months ago nothing was in stock anywhere. Now you can find refrigerators, washers, and stoves that will be delivered tomorrow. But dishwashers and dryers? Good luck! Dryers are just plain out of stock, and dishwashers are backordered until October. So if you were looking for a matching washer and dryer set - the odds are you won't be able to get it except in the cheapest low end brands. And stock up on Dawn dish soap and towels because you're going to be doing a lot of hand washing. But at least you can wash the towels in your nice new high efficiency washer before you put them on an old fashioned laundry line to air dry!

Was at Ikea today and the gross majority of the furniture displayed in the showroom is out of stock because of the component nature of their business. When you see many items at Ikea there isn't one SKU - there is a list of about 10 items that you have to go get from the warehouse side of the store then assemble the whole thing at home. I guess that in the past this has helped them keep costs down if "board 01.234.5678" could be used in both a desk and a bookcase. But you find that nearly everything on display has one or two components that are out of stock which renders most of the store completely useless. They must be losing millions despite a very, very full store and a still jam packed warehouse that has racking that is higher than most distribution centers I have visited over my career. They've got lots of inventory, but not the right inventory...

Too much of purchasing decision making for retail chains has moved from people to machines. Warehouse Management Systems are supposed to analyze the trends and order the appropriate amounts of merchandise for the stores. They can be adjusted with some human input, but usually that doesn't happen until there is a problem and then the situation spirals out of control. Couple that with Wall Street demanding impossible levels of efficiency in manufacturing where facilities should have as close to 99.9999% utilization at all times with zero slack space - and then you see national disasters like the horrible baby formula shortage that has already led to several deaths just because a single factory went offline but then all the other competitors did not have the ability to ramp up to take share. So although there is no "wasted capacity" in production - there is no ability to increase production either to keep up with trends. It is as if Wall Street does not understand Supply and Demand so they have created artificial supply caps in an effort to have the highest possible margins, resulting in massive missed opportunities, shortages and inflation.
And how much money are they losing from folks looking to upgrade, but when they find they can't get everything, buy nothing, and just sit back and settle with what they have?

I think the retailers have too much of the wrong inventory.
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