Why Walmart, Target and Others Have Too Much Inventory

And how buyers can take advantage of it.

Think back to the winter of 2021, when stores struggled to keep shelves stocked with everything from Xbox consoles to artificial Christmas trees. Three rounds of stimulus checks and the promise of new Covid-19 vaccines had prompted consumers to go for it big for the holiday shopping season, but a clogged supply chain and labor shortage have left retailers scrambling to meet growing demand.

Now the pendulum has swung the other way. Businesses are stuck with too much stuff, their warehouses are full, and they’re taking creative steps to get rid of that excess inventory, according to Mark Cohen, director of retail studies at Columbia Business School.

Economists call this phenomenon the bullwhip effect. The term describes how companies tend to react to an increase in demand by placing excessive orders to avoid shortages. This distortion is transmitted and is usually amplified at every stage of the supply chain, creating inefficiencies such as long product wait times and the overstock we see today.

“Feast or famine issues with inventory are nothing new,” Cohen says. “But Covid was this global disruption that completely overwhelmed the world in a way we haven’t seen since World War II.”

In 2020, when the virus brought the world to a standstill, products weren’t assembled and things weren’t shipped. Consumers began hoarding as panic set in (which, as we all remember, led to the horrors of the toilet paper shortage). Demand for items like suits and formal wear dried up as people abandoned offices, while the need for items like cleaning supplies, home gym equipment and furniture grew .

Retailers have gone into hyperdrive to accommodate this shift, Cohen says. The big ones — like Walmart, Target and Amazon — “loaded their pipelines with incoming inventory, created a huge expansion of physical space, and hired hundreds of thousands of people” to meet this unusual demand, he says. .

But that frenzy has ended, and some companies are now feeling the sting of the whiplash, says industry expert Cathy Roberson.

“These retailers came out and reported that they had too much inventory and not the right kind of inventory on hand,” she told KCM.

Walmart reported in May that its inventory rose about 33% as the company made aggressive purchases to keep shelves stocked. But some of those goods have arrived late because supply lines are still affected by Covid-19 lockdowns in China, which have closed major ports, CNBC Reports. Target first quarter earnings report looked like, and Gap, which includes Old Navy, Gap, Banana Republic and Athleta, said its inventory increased by 34%.

“There are probably 20% of [inventory]if you could just wish and make it go away, you would,” John Furner, CEO and President of Walmart US, told analysts in June.

What does excess inventory at stores like Walmart and Target mean for shoppers?

Walmart, Target and a host of others have already cut prices on some of their excess merchandise. And Roberson says she expects more sales to occur in the coming months, particularly for items like furniture, both because demand has slumped and because businesses are running out of room to store those big bulky items.

Some companies are so concerned about storage that they are even considering a “no return” policy, CNN reporting. Steve Rop, chief operating officer at goTRG, a company that processes returned items for companies like Walmart, Amazon and Lowe’s, told CNN that because warehouses have reached capacity and there are all kinds of expenses associated with considering returns, some of these retailers might simply tell consumers to keep their purchase after issuing a refund.

Another route companies are taking is offloading massive amounts of their extra products onto third-party discounters. Companies like TJX — which runs TJ Maxx, Marshalls and HomeGoods — Ross and Burlington are “having a good time,” Cohen says.

“They have an absolute tsunami of property available,” he says. And that means now is the time to start browsing those bargain channels.

Cohen says to be prepared for another holiday shortage, as we go through another “boom-bust cycle.”

“Retailers have tightened their belts and pulled the reins and are watching their inventory levels. They don’t want to create another crisis for themselves,” he says. Additionally, the supply chain issues caused by the pandemic are not expected to go away any time soon.

Lisa Anderson, supply chain management expert and president of LMA Consulting Groupsays if you have cash on hand now, “it’s not a bad idea to start your holiday shopping earlier this year.”