Some retailers are dealing with inflated inventories ahead of the holiday season, a post-pandemic trend that industry experts say could lead to more sales for shoppers.
Amid the COVID-19 pandemic, supply chain issues and rising demand for certain products, from bikes to furniture, meant many retailers were struggling to get popular items on shelves. Now, companies have products available, sometimes more than necessary, just when demand may be waning.
“During COVID, demand for certain categories increased and we also had supply chain issues, so retailers were unable to meet demand,” Mark Satov, a business strategy expert and president of Satov Consultants, said in an interview.
“So retailers increased inventory… Now sales are falling because inflation is crazy and supply chain issues are regulating a bit. The pendulum is really swinging wildly.”
Wells Fargo analysts wrote in a research note that inventory levels rose 36 percent year-over-year across the retail industry.
“2022 has seen elevated inventory levels coupled with deteriorating top lines, leading to the worst inventory-to-sales spreads we’ve ever seen,” the analysts wrote in the note published last week.
“To clear out inventory, many retailers have begun discounting and promotions… Looking ahead to the holiday season, our conversations with industry insiders lead us to believe that excess inventory across the industry will lead to elevated promotions this season. Christmas season, perhaps the most intense promotional period in 10 years”.
Analysts noted that even those retailers with low inventory may feel competitive pressure to put more items on sale, particularly ahead of the holiday season.
“The expected level of space-wide promotion during the holiday period could drive consumers to opt for deals and value, thus dragging those with low inventory to promote alongside high-inventory participants to drive traffic and compete for gift sales,” the analysts wrote, adding that categories with a lot of inventory include women’s sportswear and casual wear.
While Satov says it remains to be seen which categories will see higher promotion levels during the holiday season, he hopes consumers will shop around more and shop around for deals.
“We’re going to see more people buying fewer things overall, which means more price promotion, partly due to inventory … and more switching to lower-priced items in the same categories,” Satov said.
How retailers are dealing with excess inventory
There are many different strategies available to retailers dealing with inflated inventories.
“Retailers with excess inventory may look to remove excess products with in-store or online promotions, rather than more dramatic store-wide clearance campaigns,” Retail Council Canada spokeswoman Michelle Wasylyshen said in a statement. , adding that most retailers in Canada are “not too concerned” with inventory levels.
“Alternatively, many retailers will look to store excess inventory until next season.”
Retail analyst Bruce Winder says he expects retailers that sell discretionary items to face the biggest challenge as inflation continues to hit Canadians. Retail sales in Canada fell 0.5 percent in September to $61.1 billion, Statistics Canada said Tuesday, with seven of 11 categories posting declines.
“It’s not just a US problem,” Winder said.
“People are spending more of their disposable income on food, gas and housing, and with more spending on basics, there’s a decrease in demand for non-essentials… that’s where the glut is going to happen.”
At the same time, Satov says it could be a particularly challenging period for manufacturers, as retailers are trying to reduce their inventory levels in the wake of reduced sales, making it difficult to predict future demand.
“Manufacturers are likely to see some wild swings in their orders,” Satov said.
“And because different retailers may adopt different inventory strategies, it will be difficult for manufacturers to predict what their sales will be.”
Alicja Siekierska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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