A Reuters analysis reveals major US retailers may face excess stock this holiday season, impacting profit margins and resulting in steep discounts for shoppers.
Excess Stock Plague Major US Retailers
As the holiday shopping season approaches, major US retailers from Dollar General to Walmart and Macy’s could be facing excess stock for a second consecutive year. This could jeopardize the retailers’ profit margins and lead to significant discounts for shoppers, according to a Reuters analysis.
Inventory Turnover Ratio as Indicator
LSEG Workspace analyzed 30 major US retailers to determine their inventory turnover ratios. This calculation helps to identify which chains are at risk of carrying excess stock, ultimately raising retailers’ costs. Stuffed stockrooms pose a significant challenge this year as consumer spending is expected to grow at a slow pace, similar to inflation rates over the past five years.
Expert Pessimism and Retail Challenges
Experts like Gerald Storch, a retail consultant and former Target vice chairman, are expressing pessimism about the upcoming holiday season. Carrying too much inventory is expected to drive up retailers’ expenses for handling, storing, and transporting products. Many industry professionals, including Jeff Bornino, North America President at TMX Transform, emphasize the need for excess products to be removed from store shelves.
Historical Inventory Gluts and Outlook for 2022
The Reuters analysis found that two-thirds of the 30 retailers, including Foot Locker and Ulta Beauty, had inventory turnover below their peers, indicating either slow sales or excess stock. The situation is especially challenging for dollar stores, department stores, and clothing and accessories chains. Many retailers, including Foot Locker and Target, are carrying lower inventories from last year, but the levels are still high. Wall Street investors are also closely monitoring retailers’ inventory levels, promotions, and discounts.
Response from Retailers and Investor Concerns
Several retailers declined to comment on their inventory turnover ratios compared to peers, including Dollar General, TJX Companies, and Dick’s Sporting Goods. Walmart, Best Buy, Macy’s, Foot Locker, and Ulta did not respond to questions about their inventories. Target, however, highlighted a cautious planning approach and a substantial decrease in second-quarter inventory compared to the previous year. Investors holding shares in retailers are expressing concerns about potential inventory gluts for another year.
Early Discounts and Cautious Consumer Behavior
In response to a cautious consumer outlook, retailers are already rolling out holiday discounts and promotions earlier than usual. With shoppers becoming more budget-conscious due to financial strains, retailers are offering deep discounts to clear excess inventory. Research firm Jane Hali & Associates reported significant discounts at Kohl’s and Macy’s, with foot traffic lower compared to the previous year. Some retailers are hoping to drive traffic to their stores through promotions and discounts.