Retailers struggle under load of unsold inventory

We’ve been reporting about the efforts retailers are making to get rid of excess inventory. That’s because people haven’t been spending as much on all the stuff they were buying earlier in the pandemic.

But this week, we learned that inventories actually increased in August, according to the Logistics Managers’ Index. As it turns out getting rid of excess inventory isn’t all that easy.

Part of the issue is that the supply chain has a lot of momentum. Dale Rogers at Arizona State University helps put together the Logistics Managers’ Index. He said all the product shortages during the pandemic created demand for new factories and distribution centers which are finally up-and-running this year.

“These new factories and new distribution points that are coming online, are swollen with inventory, as they get going,” he said.

And even though people haven’t been spending as much on things like furniture, clothing, and exercise equipment, Rogers said a lot of those products are still coming in from overseas.

“Some of the finished goods are getting to the U.S., because the signal was ‘Hey, we want exercise equipment,’ but that signal is old,” he said.

It’s also a challenge for retailers to figure out what to get rid of and what to keep in stock.

“Every retailer that I have talked to — it’s still very unclear what the consumers are doing, and that the behavior is more erratic than they’ve seen previously,” said Nicole DeHoratius, a professor at the University of Chicago.

And as inflation continues to reduce people’s spending power, “the time it’s going to take to offload that inventory is going to grow. So I need to reduce my inventory in some way, that’s the ideal, but I need to find some way to increase the rate of sale.”

Retailers have been trying to do that by luring customers with markdowns. But Wendy Liebmann, CEO of WSL Strategic Retail, said people aren’t necessarily going to bite.

“Shoppers are being very canny at the moment. I mean, we see in our data that about three quarters of them say, ‘I think prices are going to go up again. I’m uncertain. I’m being cautious.’”

As a result, Liebmann said inventories are likely to stay high, especially as retailers try to make room for holiday items.

“That’s the challenge for most of the retailers. Not just what’s on trend, and what might people spend for, but it’s then where the heck am I going to put it, if I can’t get rid of the other stuff,” she said.

Liebmann said that means we’re likely to see more aggressive discounts before the holiday season.