Views: 6 Author: Corrine Publish Time: 2022-09-27 Origin: Site
U.S. retailers are facing their worst “inventory crisis” since the dot-com bust.
U.S. retailers in categories including furniture, household goods and appliances, building materials and garden equipment, and "other general merchandise" posted record inventory-to-sales ratios three weeks ago, analysts said, citing government data analyzed by the state of Michigan. soaring.
Big retailers like Target, Walmart and Macy's have also started announcing that they're receiving a flood of returns for outdoor furniture, homewares and electronics. In retrospect, during the epidemic, these were all things that everyone wanted to buy but couldn’t.
A National Retail Federation survey found a record $761 billion in merchandise returned to retailers in 2021. That amount exceeds U.S. defense spending in 2021 — $741 billion. Amazon’s return rate reached an astonishing 16.6%, and the average return rate for online purchases was even higher at nearly 21%, up from 18% in 2020.
The media have reported that "big discounts are coming" because "there are too many things in the store."
Retailers suffer 'labour pain'
When the Covid-19 pandemic first hit, consumers had to stay at home, many stores were temporarily closed, and retailers canceled orders from overseas suppliers.
But as the economy begins to reopen, supply chain bottlenecks caused by backlogs of factory orders and delays in port shipments have led to shortages of goods sold by retailers. To compensate, they ordered additional products and brought those orders forward to ensure the products arrived on time.
Clearance platform B-Stock helps retailers manage excess inventory by matching sellers with buyers, CEO Marcus Shen told the media:
■ They want to make sure they have stock on their shelves. During the time the product arrives, the demand changes.
Consumption trends have reversed sharply—consumers are buying less comfortable home clothing and household items that were used more at the height of the pandemic, shifting more spending to high-end dresses and travel and entertainment. At the same time, inflation has pushed up the prices of necessities like food and gasoline, sending discretionary spending plummeting.
This mismatch between supply and demand has plagued major chains like Target, Walmart, Gap and Macy's.
The U.S. GDP data for the first quarter showed that the final value was revised down to -1.6%. The U.S. Bureau of Economic Analysis stated that weak personal consumption expenditures were the main reason for the poor performance of GDP this time. The slowdown in spending kept business inventories much higher than expected in May, mostly in the retail sector.
●The 'bullwhip' crisis could last until December
According to Michael Burry, the "big short prototype", the previous excess supply in the retail industry has formed a "bullwhip effect". This is a phenomenon in which demand information is distorted in the supply chain. When suppliers at all levels of the supply chain only make supply decisions based on demand information from their adjacent sub-sellers, the inauthenticity of demand information will follow along The supply chain goes upstream and zooms in step by step, creating a domino effect.
As a result, when demand heats up, retailers will quickly order goods to fill their warehouses, often ordering more quantities than actual demand, resulting in supply shortages for wholesalers and upstream manufacturers, which in turn triggers end product prices to rise, further stimulating production. .
However, as demand began to cool, retailers' inventories surged. The inventory-to-sales ratio, which had fallen sharply, reversed sharply and even surged to its highest level since the dot-com bust. With demand taking a huge hit, retailers were forced to scramble to clear excess inventory, causing prices for many "core" products to plummet quickly.
Due to the delayed nature of the bullwhip effect, Morgan Stanley strategist Michael Wilson believes it will take some time for retailers to cut forward inventory orders. Due to supply chain delays, company orders currently have about eight months lead time. Shockingly, this means today's decision to cut forward orders could start eliminating inventory problems in the first quarter of 2023, and unlikely until then.
Wilson concluded: "We're likely to see a wave of discounts until December, as stock orders for 2022 have been placed."
Michael Burry also believes that as demand slows, the "bullwhip effect" may come to an end and will trigger deflation later this year, prompting the Fed to reverse the path of tightening and even restart easing.
● Third-party clearing institutions "earned money"
The accumulation of excess inventory at big retailers has been a boon for clearing houses and other companies that help deal with excess inventory.
Liquidity Services Inc. Clearing platforms such as , Xcess Limited and B-Stock LLC all said large retailers are working to clear excess kitchen appliances, televisions, outdoor furniture and clothing. Clearing houses typically pick up goods (not yet on store shelves) at ports or warehouses and sell them to small retailers and individuals, who resell them online.
According to media reports, JD Daunt, chief commercial officer at Liquidity Services, which operates the online marketplace, said:
■Unusually, large retailers may never touch these products. They are asking us to act sooner than in the past.
The level of excess inventory is extraordinary and affects so many retailers at once.
"We encourage all products that are received to be given a new lease of life," said cherris Armour, Amazon's head of North American returns, in an interview. "Returned products are resold as new and used items, returned to sellers and suppliers, or donated to them. ."
The boom in the second-hand market has also made it easier to make money on second-hand goods. The data shows that the size of the second-hand market in the United States in 2021 will be $688 billion, up from $649 billion in 2020.
●From small retailers to ordinary people, it is a joy to "choose wool"
Home Buys, a discount retailer with eight stores in Columbus, Ohio, typically sells designer washers and dryers at 40 percent off regular prices.
Brady Churches, the chain's chief executive, told the media:
■Before Covid-19, we wouldn't have washers and dryers in our stores. Because the market for these commodities is usually tight, there isn't much excess.
But Churches said there is now more surplus than at any time in the past 20 years. He's been collecting lawn and garden clothing equipment, especially winter sweaters and other winter gear that's outdated by the time the sales season rolls around:
■The second-hand market is full of clothing.
Bargain Hunt is an 85-store chain of affordable stores located in Nashville, Tennessee. Norm Rankin, the company's senior vice president of merchandise merchandising, said he has been in talks with a major retailer to buy $30 million worth of Christmas merchandise, including artificial trees, ornaments and home decor, which were sold at last year's event. Arrived after the Christmas season.
"The quality of these items is very high, because a lot of the items don't even make it into the retailer's warehouse," Rankin said.
But while there's a lot of excess outdoor furniture on the second-hand market, it's not buying a lot because the season to sell them is coming to an end, "and we don't want to overstock ourselves".
Donna Griffin, a 61-year-old retired woman, said she saw a lot of furniture and mattresses as well as winter clothing at the Bargain Hunt store near Cropwell, Alabama, according to media reports. She recently picked up a couple of clearance women's coats for $2.75 each, down from their regular price of $100. "The prices are lower than usual because these items are out of season," she said.
The same goes for big discount chains like TJX Cos and Ross Stores.
Xcess Limited boss Jason Carrick said summer was usually a low season for clearance, but this year was an exception. His company ships out 1,600 truckloads of excess merchandise each month, including clothing, treadmills and video game consoles, from a large online retailer. Xcess also recently shipped 150 truckloads of Easter and spring merchandise from another large chain.