Retailers Restocking Inventory Face a Potential Postholiday Hangover

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Traders are rushing to place orders ahead of the year-end holidays, but delays in delivery may result in an untimely plethora of goods.

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“We should have too much inventory rather than not enough,” Ms Pasqualone said. “But then that eats up your margins too.”

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The stakes for retailers during the crucial fourth quarter, when sales and profits have traditionally peaked, were high this year due to supply-chain volatility, transportation bottlenecks and the uncertain impact of the Omicron version of COVID-19 on shopper behavior. it happens.

“If you go over budget, people will get mad at you, but you’ll still have a job on Monday,” said Ted Stank, a supply chain professor at the University of Tennessee’s Haslam College of Business. “And so the trend is to make sure we don’t stock up.”

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US consumer demand has been strong this year, and the holidays are picking up steam. Sales at online and physical stores rose 14% during the Thanksgiving weekend compared to last year, according to data released by Mastercard Spending Pulse.

Broader measures showed the retailer stock ended the fourth quarter severely. US retailers held $602.7 billion in inventory in September, compared to the $664.4 billion they had in September 2019, according to data from the US Department of Commerce, before the pandemic’s supply chains.

But record backups of container ships in the US and logjams at other delivery chokepoints suggest large quantities of cargo are still tied up in the supply chain. With Christmas approaching and facing a potential influx of out-of-season merchandise into the new year, many businesses are left in limbo.

Companies with deep pockets like Walmart Inc.,

Target Inc. and Home Depot Inc.

Says their inventory is in good condition after products load up quickly and even ships to rent to ensure items arrive in time for the peak of the holiday.

Traders with smaller shipping budgets or less clout with suppliers are hedging their bets, doubling or even tripling their normal volume if some orders don’t show up on time or at all.

The risk of overbought is greater for retailers who sell a narrower range of products or accessories quickly, such as fast fashion or Christmas sweaters, than they would be for general merchants whose array of merchandise provides a natural hedge.

Even big operators like apparel retailer Gap Inc.

Vietnam is feeling the heat after orders slowed in the third quarter following coronavirus-related factory closures, raising the possibility of order delays. “If we think things are too late for the holiday season, we won’t put them in store or online and let them generate markdowns,” Gap Chief Financial Officer Katrina O’Connell said in a November 23 earnings call. ,

In a Morgan Stanley survey, more than 50% of companies, including retailers, said in each of the first three quarters of this year that they planned to increase inventory. In quarterly surveys in the years before the pandemic, an average of about 20% of shippers planned to increase inventory.

Retailers and suppliers typically plan their inventory months in advance, making it difficult to respond to fluctuations in consumer demand or prolonged supply-chain volatility due to COVID-19.

“If you’re a medium-sized retailer, you have to decide what will be in demand at Christmas in May,” said Chris Caplis, executive director of the Massachusetts Institute of Technology’s Center for Transportation and Logistics. “The forecast for demand during the pandemic is kind of out the window.”

This year, boutique owner Jodi Springer doubled holiday inventory orders for Sassy Southern Design, her women’s clothing and home decor store in Lawrenceburg, Tenn., due to high demand and shipping constraints. Now she’s worried that some of the Christmas-themed items will be late, forcing her to keep the merchandise with her until next year.

“It’s not possible, I need that cash flow now,” Ms. Spring said. “So I’m just hoping and praying here that things come to fruition.”

Merchants who end up with more product than they planned will often rent additional warehouse space until they can deplete the inventory. Such short-term arrangements tend to be more expensive than standard leases, and the value of inventory can drop quickly, said Eric Trum, retail practice lead for Atlanta-based consulting firm Insight Sourcing Group LLC.

Mr Traum said retailers should be planning for January leftovers in advance. Merchants looking to maintain more control over their brand can reduce some of the losses by offloading excess inventory through pop-up or flash sales, or selling through their own outlet stores, targeting certain customers.

Many items will end up at discount chains like TJ Max’s or Marshalls, both of which are owned by TJX Cos. Liquidation typically generates money on the dollar. Persistent shipping constraints may be acting as a way for some retailers to redirect late-arriving containers to discounters before consignment goes deeper into the company’s own supply chain, Mr Traum said.

Not all retailers expect huge discounts on used merchandise.

Retailer Lands End Inc. Said said its supply-chain costs are rising as it ramps up efforts to get goods in stock. But seasonal items like outerwear and shoes could sell for close to full price in January if customers can’t get their hands on the gear, Lands’ End chief executive Jerome Griffith said during the company’s December 2 earnings call. In the first season.

Jennifer Smith at jennifer.smit[email protected] and Lydia O’Neal at [email protected]

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