Retailers push big holiday discounts to ease stockpile avalanche

If last year’s holiday shopping season was characterized by empty shelves and a race to meet demand in a healthy U.S. economy, very different concerns emerged just 12 months later: glut and decrease of sales.

U.S. retailers are sitting on so much inventory that brands — especially for apparel and homewares — have resorted to listing their products on resale websites, hosting sample sales, giving things to employees, offering deep discounts, and even throwing away merchandise.

This period of plenty was sown last year, when demand for goods soared but clogged supply chains caused long delays. Fearing shortages, retailers including Gap and Nike ordered extra quantities and did so earlier than usual, but a combination of poor forecasts and inflation-ridden buyers created massive gluts .

The overhang is leading to order cancellations, a sharp slowdown in global trade growth and stagnant factory activity. On the one hand, it’s good that logistics networks are seeing relief from the traffic jams that plagued early 2022 – shipping rates have fallen near pre-pandemic levels and delivery times are getting shorter.

But most supply chains don’t work well during rapid back-and-forth turns, and now the return to excess haulage capacity is clouding the outlook for companies such as rail operator Union Pacific and the giant container transport AP Moller-Maersk.

While retailers such as Kohl’s and Nordstrom expect to reduce much of their bloated inventory by the end of the year thanks to increased promotions, analysts and warehouse operators say it will likely take most of next year to eliminate excesses.

The pain rises upstream. In the United States, the number of jobs in warehouses and storage fell by 20,000 in October, the most since April 2020, according to government data released on Friday. Some workers, including those in the garment industry, are experiencing reduced overtime and lower take home pay.

Figures released on Monday show Chinese exports fell for the first time in more than two years in October. Last week, Vietnam’s Commerce Ministry – a popular alternative to Chinese exports in recent years – warned of a significant drop in orders for products including sneakers and smartphones.

“There’s a double whammy phenomenon where companies could be under pressure on their margins because of the many discounts and promotions that are going to happen, and they’re also going to be under pressure on the margins because at the same time as the prices go down, costs stay high,” said UBS Group analyst Jay Sole. “That’s something that Wall Street is really worried about.”

LA Warehouses

Mountains of cargo are parked in places like Southern California. The vacancy rate for warehouse space in the Greater Los Angeles area – home to the two largest ports in the United States – is at 0.2%, compared to 4-6% in general at this time of the year. year, according to the executive director of the Port of Los Angeles. Seroka gene.

“You’re going to be buying different products on store shelves and online by the holidays than you are in these warehouses – the latest games, the latest technology, the latest fashion,” Seroka said in a recent interview. “How do you clear out the inventory that’s been in those warehouses for a while?”

The problem is acute for mainstream brands that cater to low- and middle-income Americans who are increasingly being hit by higher inflation, spending more of their budget on basic necessities like food. and public services.

Apparel industry sales are expected to decline 1% in the last three months of this year, compared to 21% growth in 2021, according to data from NPD Group.

Traditional inventory management methods such as discounts and pack and hold – a strategy in which retailers keep products in warehouses and bring them back for another season – are already widely used.

In earnings calls last month, executives from brands including Vans owner VF Corp., Levi Strauss & Co. and Container Store Group all pointed to a holiday season with bigger promotions than in recent history. .

“In a promotional environment in the market, this is going to be all around us,” VF chief financial officer Matt Puckett said on Oct. 26. “And we certainly expect that to have an impact on our business.”

But the latest Logistics Managers’ Index shows that inventory and warehousing costs remain stubbornly high, so discounts alone aren’t enough.

Companies are getting creative when it comes to liquidating excess goods.

“I have clients who ask: Can we throw things away? Can we give it to our associates? Can we recycle it? said Jeff Havelka, CEO of Beyond Warehousing, a Kansas-based third-party logistics company. “They just don’t want to pay to store it anymore.”

Havelka said retailer orders were down 30% from a year ago, but inventory was up 50%, “tying up their cash and credit.” A number of his customers are offloading their inventory at a loss, he said.

“Some companies are probably going to die here because they weren’t strong enough to pull through and were focused on the wrong things,” Havelka said.

Other brands are using resale platforms, including Poshmark, ThredUp and Etsy-owned Depop, to list excess inventory, said Josh Kaplan, co-founder of Ghost, an online marketplace where retailers can list anonymously excess inventory for sale. Some Ghost customers are turning to pop-up stores or sample sales to offload their wares, he said.

To keep their inventory from growing, retailers have in some cases postponed orders from suppliers, said Liana Foxvog, director of supply chain strategies at the Worker Rights Consortium.

Kontoor Brands, owner of Wrangler and Lee jeans, said Nov. 3 that it was using downtime at its factories to control inventory levels.

Small paychecks

A slower pace of inventory growth over the next few quarters is expected to dampen US gross domestic product, further contributing to concerns about a more fragile economy. Deferred or canceled orders also impact the labor market, resulting in fewer hours or fewer jobs for workers along the supply chain.

“We’re hearing there’s been a decrease in take-home pay for workers, and that’s due to the reduction in overtime,” Foxvog said of garment workers in particular. “In many places, workers are working fewer total hours per month and therefore taking home less money.”

The longer-term impact of the current inventory overload will become clearer over the next month when the majority of U.S. public apparel and homeware brands release their third quarter results and provide an update on inventory growth.

“Even in the last three days we’ve seen some of the biggest or most valuable brands in the world contact us for help with excess inventory,” Kaplan said. “It’s a complete tidal wave at this point. We need the customer to spend, and until that happens the product won’t budge.