Retailers in the US Push Big Holiday Discounts to Ease Inventory Avalanche

If last year’s holiday shopping season was characterized by empty shelves and a race to meet demand in a booming US economy, very different concerns have emerged just 12 months later: gluts and falling sales.

American retailers have so much inventory that brands, particularly clothing and home goods, have resorted to listing their products on resale websites, hosting sample sales, giving away stuff to employees, offering deep discounts and even dumping products.

The seeds of this period of plenty were sown last year, when demand for goods soared but clogged supply chains caused long delays. Fearful of shortages, retailers such as Gap Inc. and Nike Inc. ordered more and ordered earlier than usual, but a combination of poor forecasts and inflation-affected shoppers created massive gluts.

The glut is causing order cancellations, a sharp slowdown in global trade growth and stagnant factory activity. On the one hand, it’s good that logistics networks are relieved from the jams that plagued the start of 2022: ocean shipping rates have plummeted close to pre-pandemic levels and delivery times are getting shorter.

But most supply chains don’t perform well during quick turns in either direction, and now the recovery of excess transportation capacity is dimming the outlook for companies like rail operator Union Pacific Corp. and trucking giant New York. AP Moller-Maersk A/S containers. .

While retailers like Kohl’s Corp. and Nordstrom Inc. expect to pare much of their bloated inventories by the end of the year thanks to increased promotions, analysts and warehouse operators say it will likely take most of next year for them to squeeze out. The excesses.

The pain is rippling upstream. In the US, the number of warehousing and storage jobs fell in October by 20,000, the most since April 2020, government data showed on Friday. Some workers, including those in the garment industry, are experiencing reductions in overtime hours and a decrease in take-home pay.

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

“There is a double whammy happening where companies may experience pressure on their margins due to many of the discounts and promotions that are going to occur, and they are also going to experience pressure on margins because at the same time that prices are going down , costs are still high,” said Jay Sole, an analyst at UBS Group AG. “That is something that Wall Street is very concerned about.”

LA Warehouses

Mountains of merchandise are parked in places like Southern California. The vacancy rate for warehouse space in the Los Angeles metropolitan area, where the two largest ports in the US are located, sits at 0.2 percent, compared to the typical 4 percent to 6 percent. percent this time of year, according to the executive director of the Port of Los Angeles. Gene Seroka.

“You’re going to buy different products on retail shelves and online between now and the holidays than you do in those stores: the latest games, the latest technology, the latest fashion,” Seroka said in a recent interview. “How to empty inventory that has been in these warehouses for some time?”

The problem is acute for mass-market brands catering to low- and middle-income Americans who are increasingly feeling the pinch of higher inflation, spending more of their budgets on necessities like food and utilities.

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

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

On earnings calls last month, brand executives including Vans owner VF Corp., Levi Strauss & Co. and Container Store Group Inc. all pointed to a holiday season with deeper promotions than ever. recent.

“In a promotional environment in the market, it will surround us,” VF CFO Matt Puckett said on Oct. 26. “And we certainly expect that to have some impact on our business.”

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

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

“I have some clients who ask: Can we throw things? 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 orders from retailers are down as much as 30 percent from last year, but inventory is up as much as 50 percent, which is “tying up your cash and your credit.” Several of his clients are unloading their inventory at a loss, he said.

“There are some companies that are probably going to die here because they weren’t aggressive enough to get through this and focused on the wrong things,” Havelka said.

Other brands are turning to reselling platforms, including Poshmark Inc., ThredUp Inc. and Etsy Inc.-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 download their products, he said.

To keep their stocks from building up, retailers have in some cases deferred orders from suppliers, said Liana Foxvog, director of supply chain strategies at the Worker Rights Consortium.

Kontoor Brands Inc., which owns Wrangler and Lee jeans, said Nov. 3 that it is using downtime at its plants to control inventory levels.

smaller paychecks

A slower pace of inventory growth in coming quarters is likely to weigh on US gross domestic product, further contributing to concerns about an economy on a weaker footing. Deferred or canceled orders also affect the labor market, leading to fewer hours or jobs for workers throughout the supply chain.

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

The long-term impact of the current inventory overload will become clearer next month, when most public US apparel and home goods brands report third-quarter earnings and provide an update on growth. of inventory.

“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 will not move.”

By Olivia Rockman

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