This was not the year retailers had planned.
Two years after getting through the pandemic — which brought record online sales and shoppers willing to buy all kinds of goods, to the point that the global supply chain has become strained — executives realized a new normal was taking shape.
The thinking went that sales might slow, but people still wanted TVs, fashionable dresses, and pillows. So, with supply chain issues in mind, companies stockpiled inventory. But this spring, it became clear that these items weren’t selling out fast enough. As people watched food and gas prices rise, their spending became more selective, leaving retailers with shelves of inventory they couldn’t get rid of.
The magnitude of the miscalculation crystallized this week in a batch of quarterly earnings from major retailers such as Walmart And the targeting, which showed a combination of lower discretionary sales and lower profits. A number of them revised their guidance, lowering expectations for both sales and profits for the rest of the year. a stock overload Impact on corporate budgets: Inventory at Walmart is up 25 percent from this time last year. At Target, it increased by 36 percent. Coles said inventory is up 48 percent.
Michelle Gass, Kohl’s CEO, said in a call with analysts. “As we permeate these categories, this disproportionately affects Kohl’s.”
Taken together, the results show that the active retailers accustomed to during the pandemic have stalled — and the consumer landscape they have been waiting for may be even tougher than they prepared for. (There were exceptions—Home Depot, for example, said sales were still strong, driven by home improvement projects.) And on earnings calls, executives said low-to-middle-income consumers are the most reluctant to spend. Stores are responding by paying more discounts, highlighting the brand’s private label to shoppers, and, in some cases, canceling multibillion-dollar orders with sellers. It remains to be seen which strategies will be most effective.
What is inflation? Inflation is a Loss of purchasing power over time, which means your dollar won’t go away tomorrow the way it did today. It is usually expressed as the annual change in the prices of everyday goods and services such as food, furniture, clothing, transportation, and toys.
“The past couple of years have been great for retailers because consumers have been buying everything they have to offer,” said Lisa Amlany, founder of the Retail Strategy Group, which works with brands on their marketing and planning strategies. “They can’t do that anymore. You have to understand what the consumer wants now more than ever.”
In July, US retail sales were Practically unchanged, according to data from the Ministry of Commerce released Wednesday. Excluding gas and auto sales, retail sales increased 0.7 percent. But 85 percent of US consumers said inflation is changing the way they shop, according to A questionnaire Released this week by Morning Consult.
Most retailers hope the downturn is only temporary. Meanwhile, companies are trying to tell customers that it’s worth doing what they spend in their stores. Kohl’s, for example, said its own brands outperformed its national brands last quarter, and that shoppers were drawn to buying more basic wearables with many different outfits.
Retailers are also turning to the familiar strategy of discounting merchandise to entice shoppers to open their wallets. It’s something they haven’t had to publicize for most of the pandemic, when people have shown they are willing to pay full price for a wide variety of items. Target, Walmart and Ross Stores all said they have been reducing merchandise in recent weeks. In contrast, retailers such as BJ’s Wholesale Club – even if they are satisfied with their balance sheets – have said they have lowered prices in some categories in order to stay competitive. Even Robert Eddy, CEO of BJ’s Wholesale Club, said the company was ready to “change the scope and depth of those promotions” for the holiday season.
Analysts say the discounting strategy may not actually reach the root cause.
“There is a point where lower prices do not increase demand because consumers already have them,” said Simeon Siegel, managing director at BMO Capital Markets. “This is not an indication that the company is dead. It is not an indication that they will never buy it again. They just need the time lag.”
Siegel said retailers need to realize that consumers think differently. Some big-ticket purchases—like an exercise bike, living room sofa, or patio grill—will only happen once. In other cases, the amount of time between purchase and renewal will be longer. A person may now buy a candle every few months, compared to buying them every month in the early stages of the epidemic when they were often at home. And more people are choosing to spend their money on things like plane travel and movie tickets this summer than before.
With all of these variables, Siegel said, lowering prices may not lead to the demand the retailer wants. This may simply reduce the company’s profits.
For stores that have experienced sales growth, such as large retailers Walmart and Target, most of that volume is attributable to higher food prices. Grocery stores have narrower profit margins than, say, a retailer’s private clothing brand, and the shift in sales from one category to another affects the company’s overall profitability.
Understand inflation and how it affects you
Besides pricing, retailers need to know how to deal with their inventory issues, especially with the all-important holiday season only a few months away.
“The access to inventory levels allows them to have a cleaner store, and a cleaner supply chain,” said Bobby Griffin, equity research analyst at Raymond James. “They won’t be able to predict that perfectly, but going over excess inventory will give them more flexibility to try and adapt to whatever the holiday throws at them.”
For all the challenges, some retailers saw a brighter path ahead. While stock at TJX, owner of the TJ Maxx and Marshall chains, was up 39 percent from the quarter, the company said it was comfortable at that level because they already had what shoppers wanted.
“They are looking for an exciting treasure hunt and an entertaining in-store shopping experience, and along with this value equation, we continue to deliver on those two things,” TJX CEO Ernie Hermann said on a call with analysts.
Isabella Simonetti Contribute to the preparation of reports.
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