‘We’ve never seen anything like this’: US retailers compete to liquidate stocks

Air fryer reduced from $149 to $110; 10 percent off trampoline and star-studded pajamas set for $9 instead of $12: It wasn’t hard to find red “undo” signs this week at the Walmart Supercenter closest to the retailer’s headquarters in Bentonville, Arkansas.

A mile from the small town square where Sam Walton opened his pentagon and dime store in 1950 and began building the world’s largest retail empire, discounts told the story of the American retail industry facing historical difficulties in forecasting both supply and demand.

This week, the $350 billion company issued its second earnings warning in just over two months, telling investors that rising inflation, particularly in food and fuel prices, is affecting its customers’ ability to buy other goods.

Walmart’s growth has been built on strong competitive pricing and tempting promotions that it calls “the dip.” But now she is forced to resort to more write-downs than planned, in particular to turn over inventory in clothes. At the store on South Walton Boulevard this week, bright yellow balloons marked “Clearance” appeared on $4 T-shirts and $11 Bentonville Tigers jackets.

Walmart’s statement hit its shares and that of competitors from Amazon to Home Depot, but it’s not alone in warning that sudden shifts in consumer spending are hurting stocks.

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

Not only are consumers worried they have less money to spend after filling their refrigerators and cars, retailers say more of their discretionary spending goes on experiences they missed earlier in the coronavirus pandemic, such as traveling and eating out, rather than on clothes or furniture. or hardware.

Nominal vs. Real Grocery Consumption (Adjusted for Inflation)

However, unexpected demand, especially among the most cash-strapped consumers, is only part of the challenge. Fearing a repeat of the supply chain delays that burned it down last holiday season, many companies stockpiled early this year.

Mattel, the maker of Barbie dolls and Hot Wheels cars, reported last week that its stock was up 43 percent year-over-year, for example, while rival Hasbro also has unusually high stock levels as it has been stockpiled for peak season for makers the games.

“Importers no longer trust supply chains,” explained Zvi Schreiber, CEO of the reservation logistics service Fritos. “Retailers are taking no risks. If they can afford inventory, they will now be ready for the shopping season.”

A large backlog at US and Chinese ports delayed shipments for many retailers last fall, leading to higher freight costs and some shortages. Shipments that arrived late turned into excess stocks that retailers had to offload cheaply in the spring or stockpile for resale in December.

Ocean shipping rates are down 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 United States, according to Freightos. That’s a two-thirds drop year-over-year, but still more than four times what importers were paying in 2019.

Few retailers are betting that congestion will end anytime soon, as a labor shortage has kept delays running, unions are still in negotiations with California ports and labor unrest threatens to disrupt trucks and rail.

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

Yellow clearance balloons dominate the Walmart store on South Walton Boulevard in Bentonville, Arkansas, a mile from where founder Sam Walton opened his glamorous five-cent store in 1950 © Andrew Edgecliffe-Johnson/FT

Retailers who bring in products long before the holiday shopping season have to deal with scarce and expensive storage. Prologis, the warehouse rental company, said last week that its average occupancy rate rose from 96 per cent to 97.6 per cent, while rents for newly rented US warehouses rose 54 per cent year on year.

Warnings from Walmart and other retailers raise questions about how much of the contents of these warehouses will be sold as planned.

Von Moore, CEO of logistics company AIT, said what holiday demand will look like is in flux, noting that two of his large retail customers have lowered their sales forecasts ahead of the peak annual shopping period.

“The problem is, as we enter the holiday season, they have the wrong stock in the warehouse,” he said, predicting that “slash and burn” sales would be necessary to clear old stock and make room for new merchandise.

Consumers send 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 Best Buy said this week that spending on consumer electronics “has fallen further” since May.

However, strong results from the likes of Harley-Davidson and LVMH, owners of luxury brands Louis Vuitton and Tiffany, suggest sales of high-quality goods remain strong.

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

Surveys by the National Retail Federation show that the typical household will spend 2 percent more than last year on notebooks, pencils and other supplies, but total retailer volume will drop slightly from last year, from $37.1 billion to $36.9 billion. dollars, even earlier. Adjustment to inflation.

Ethan Chernovsky, the site’s vice president of marketing, noted that promotions like the 50-cent binders in Walmart’s back-to-school displays may be less important in determining whether retailers can handle this year’s inventory challenge than a matter of Whether inflation will begin to decline. Placer.ai data company.

The current mix of historically high inflation and historically low unemployment is a mix that not even vintage Walmart retailers have a game-play guide, said Stephanie Jejelski, vice president of research for ICSC Shopping Center Group.

“The struggle for everyone at the moment is that we’ve never seen anything like this before,” she said.

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