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‘We’ve never seen anything like this’: US retailers compete to clear stock

An air fryer discounted from $149 to $110; a 10-percent-off trampoline and a set of star-studded kids’ pajamas for $9 instead of $12: The red “rollback” signs weren’t hard to find this week at the Walmart Supercenter closest to the retailer’s headquarters in Bentonville, Arkansas is located .

A mile from the small town square where Sam Walton opened his five-and-twin store in 1950 and began building the world’s largest retail empire, the discounts told the story of an American retailer that is experiencing historical difficulties in forecasting sales. both supply and demand.

This week, the $350 billion company issued its second profit warning in just over two months, telling investors that rising inflation, particularly in food and fuel prices, was impacting its customers’ wealth. to afford other goods.

Walmart’s growth was based on aggressively competitive pricing and the tantalizing promotions it calls “rollbacks.” But it now has to resort to more price cuts than planned, especially to shift its clothing stock. At the store on South Walton Boulevard this week, bright yellow balloons marked “clearance” floated over $4 T-shirts and $11 Bentonville Tigers sweatshirts.

Real food consumption

Walmart’s statement hit its stock and those of rivals from Amazon to Home Depot, but it’s far from the only one warning that sudden shifts in consumer spending wreak havoc on inventories.

Target warned in May that it would have to mark down products and cancel orders to clear excess inventory in categories from televisions to outdoor furniture. Bed Bath & Beyond, Macy’s and Gap have admitted in recent months that they have had similar inventory issues.

Not only are consumers worried about having less money to spend after stocking their fridges and cars, retailers say more of their discretionary spending is going towards experiences they previously missed in the coronavirus pandemic, such as travel and dining out rather than on clothing, furniture or appliances.

Nominal versus real (adjusted for inflation) grocery consumption

However, unpredictable demand, especially among the tightest consumers, is only part of the challenge. Several companies, fearing a repeat of the supply chain delays that have caused them over the past holiday season, have started stockpiling early this year.

Mattel, the maker of Barbie dolls and Hot Wheels cars, reported last week that its inventories were up 43 percent year-on-year, for example, while rival Hasbro also had unusually high inventory levels as it stockpiled ahead of the toy makers’ peak season.

“Importers no longer trust supply chains,” explains Zvi Schreiber, chief executive of logistics booking service Freightos. “Retailers don’t take any risks. If they can afford the inventory, they are now ready for the shopping season.”

Major backlogs in US and Chinese ports delayed shipments for many retailers last fall, resulting in rising freight costs and some shortages. Late-arriving shipments turned into surplus stock that retailers had to unload cheaply in the spring or put in storage for resale in December.

Shipping rates have fallen 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 US West Coast, according to Freightos. That’s two-thirds less year on year, but still more than four times what importers paid in 2019.

Few retailers are betting that congestion will end soon as labor shortages have fueled the delays, unions continue to negotiate with California ports and labor unrest threatens truck and rail outages.

Yellow Clearance Balloons at Walmart's 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 five and a dime store in 1950 © Andrew Edgecliffe-Johnson/FT

Retailers who bring in products long before the Christmas shopping season face scarce and expensive storage. Prologis, the warehouse leasing company, said last week that the average occupancy rate had risen from 96 percent to 97.6 percent, while rents for newly leased U.S. warehouses were up 54 percent year on year.

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

What holiday demand will look like is in flux, says Vaughn Moore, chief executive of logistics company AIT, noting that two of its major retail customers have lowered their sales forecasts ahead of the annual shopping peak period.

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

Consumers are sending mixed signals about their desire to spend. The University of Michigan’s consumer confidence index hit its lowest level in its 70-year history in June, and Best Buy said this week that consumer electronics spending “has weakened even further” since May.

Still, strong results from the likes of Harley-Davidson and LVMH, owners of luxury brands Louis Vuitton and Tiffany, suggest sales of more expensive goods remain robust.

Those mixed signals have taken a more critical look at the upcoming back-to-school shopping season than usual, which could provide a clearer picture of how consumers will approach the larger holiday season.

Polls by the National Retail Federation show that the average household will spend 2 percent more than last year on notebooks, pencils and other supplies, but total retail revenue will be slightly lower than last year, from $37.1 billion to $4 billion. 36.9 billion, even earlier adjusting for inflation.

Promotions like the 50-cent binders in Walmart’s back-to-school displays may be less important in determining whether retailers can meet this year’s inventory challenge than whether inflation is beginning to ease, noted Ethan Chernofsky, vice president of marketing. on location. data company Placer.ai.

But the current combination of historically high inflation and historically low unemployment is one that even Walmart’s vintage retailers have no script for, said Stephanie Cegielski, vice president of research for the shopping center group ICSC.

“The struggle for everyone right now,” she said, is that “we’ve never seen anything like it.”

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