‘We’ve never seen anything like it’: US retailers compete to clear stock

An air fryer marked $149 to $110; 10 percent off a trampoline and a set of star-spangled kids’ pajamas that cost $9 instead of $12: The red “rollback” sign wasn’t hard to find this week at the Walmart Supercenter closest to the retailer’s headquarters in Bentonville, Arkansas. ,

About a mile from the small town square where Sam Walton opened his Five & Dime store in 1950 and began building the world’s largest retail empire, Discount has created a U.S. retail Industry that has historically faced difficulties in predicting both supply and demand.

This week, the $350bn company released its second profit warning In just two months, telling investors that rising inflation, especially in food and fuel prices, is affecting its customers’ ability to afford other commodities.

Walmart’s The development was built at aggressively competitive prices and attractive promotions call it “rollback”. But now it has to resort to markdowns more than planned, especially to move inventory to apparel. At a South Walton Boulevard shop this week, bright yellow balloons marked “clearance” cost more than a $4 T-shirt and $11 Bentonville Tigers sweatshirt.

actual food consumption

Walmart’s statement hurt its and rivals’ shares heroine For Home Depot, but it’s far from alone in warning that a sudden change in consumer spending is wreaking havoc with inventory.

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

Consumers are not only worried that they have less money to spend after filling up their fridges and cars, retailers say: More of their discretionary spending is going to experiences they’ve had before the coronavirus. There were misses in the pandemic, such as traveling and eating out, rather than on clothing, furniture or equipment.

Nominal vs. Real (Adjusted for Inflation) Grocery Consumption

However, unpredictable demand, especially among the most cash-strapped consumers, is only part of the challenge. Many companies, fearing a repeat of the supply chain delays that burned them out last holiday season, are stockpiling earlier this year.

Barbie doll and Hot Wheels car maker Mattel reported last week that its inventory was up 43 percent year over year, while rival Hasbro also had unusually high inventory levels as it hit the toymakers’ peak season. stocked for.

“Importers no longer rely on supply chains,” explained Zvi Schreiber, chief executive of logistics booking service Fretos. “Retailers are not taking any risk. If they can afford the inventory, they are having ready stock for the shopping season. ,

Extensive backlogs at US and Chinese ports delayed shipments for many retailers last autumn, resulting in increased freight costs and some shortages. Late shipments turned into excess inventory that retailers had to cheaply offload in the spring or put into storage to resell this December.

Ocean shipping rates have fallen from last year’s peak, but are still well above pre-pandemic levels. Last week, it cost an average of $6,593 to ship a 40-foot container from Asia to the west coast of the Americas, according to Fretos. This is down two-thirds year on year, but still more than four times what importers were paying for in 2019.

Some retailers are betting on an end to overcrowding any time soon, as labor shortages have kept delays, unions negotiating with California ports and labor unrest threatens truck and rail disruption.

Yellow clearance balloons at a Walmart store on South Walton Boulevard in Bentonville, Arkansas

Yellow clearance balloons at a Walmart store on South Walton Boulevard in Bentonville, Arkansas, where founder Sam Walton opened his Five & Dime store in 1950 | © Andrew Edgcliffe-Johnson / FT

Retailers bringing in products long before the holiday shopping season have to deal with scarce and expensive storage. Warehouse leasing company Prologis said its average occupancy rate rose from 96 percent to 97.6 percent last week, while rents for newly leased U.S. warehouses were up 54 percent year over year.

The warnings from Walmart and other retailers raise questions about how much of those warehouse materials will be sold as planned.

Von Moore, chief executive of logistics company AIT, said holiday demand is in flux, noting that two of his big retail customers have downgraded their sales forecasts ahead of the peak annual shopping period.

“The problem is, as we move into the holiday season, they’ve got the wrong stock in the warehouse,” he predicted, selling “slash and burn” to clear out old stock and make room for new merchandise. will be required.

Consumers are sending mixed signals about their willingness to spend. The University of Michigan’s consumer sentiment index hit the lowest level in its 70-year history in June, and this week Best Buy said spending on consumer electronics was “more soft” since May.

Yet the strong results of the likes of Harley-Davidson and LVMHThe owners of luxury brands Louis Vuitton and Tiffany’s suggest that sales of high-end goods remain strong.

Those mixed signals have led to more scrutiny than usual in the upcoming back-to-school shopping season, which may provide a clearer picture of how consumers will approach the big holiday season.

Polls conducted by the National Retail Federation show that the typical household will spend 2 percent more on notebooks, pencils and other supplies than last year, but the total number of retailers increased from $37.1bn to $36.9bn last year. slightly lower, even before adjusting for inflation.

Promotions like the 50-cent folder in Walmart’s back-to-school display may be less helpful in determining whether retailers can navigate this year’s inventory challenge than in the question of whether inflation begins to ease. Ethan Chernofsky, vice president of marketing at Placer’s data company, said.

But the current combination of historically high inflation and historically low unemployment is one for which retailers of Walmart’s vintage have no playbook, said Stephanie Segilski, vice president of research for shopping center group ICSC.

“Struggling for everyone right now,” she said, “we’ve never seen anything like it.”

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