Shift in Traditional Buying Habits Result in Record High Inventories

Who can forget watching the nightly news last year and seeing the gridlock caused by ships in ports on the west coast waiting to unload cargo. The delay in unloading merchandise scheduled for sell in the upcoming season caused an inventory nightmare that continues to ripple throughout the supply chain. Target and Walmart dramatically cut prices on apparel and other season products to clear it out and make space for fall merchandise. What are the typical reasons for excess inventory?

• Sixty percent—shipment delays due to processing time, frequency of orders, or international regulations
• Twenty-five percent—technical problems caused by processing systems, purchase orders, and a lack of understanding of business operations
• Fifteen percent—other factors such as returns or quality issues

Even under the best of circumstances, demand can be hard to predict. Business who miscalculates the number of products they can sell will have to reduce the price or liquidate slow moving items. Holding on to merchandise too long can result in additional cost and wasted shelf space.

However, since the start of the pandemic there are other unforeseen factors contributing to excess inventory levels and making accurate forecasting problematic.

2022 Inventory Levels at Record High
Traditionally small to mid-size retailers buy for the upcoming season during the current season. For example, store owners who attend a fall buying market are usually purchasing for the spring. Large retailers purchase up to a year in advance of the buying season to ensure goods are readily available.
However, consumers are causing the scenario to shift. The trend began with the pandemic. People now buy for their immediate needs rather than anticipating what they will need for weeks or months down the road. In 2022, retail inventories are at a record high. Now when stores breakout spring products in mid-winter, those things remain sitting on shelves or hanging on racks for lengthy periods of time. Seasonality is now beginning to blur.

Peak Holiday Sales Level Out
In the past retailers could count on sales increases during traditional holidays such as Mother’s Day, Father’s Day, and Memorial Day. However, the momentum slowed this year. Sales were lower than they have been in the past three years. Analysts believe slowing sales is a predictor that consumers’ buying behavior is changing. Moving forward, retailers will need to create promotions more exciting than they have previously to engage consumers. Softer sales during the holidays have a significant impact on profitability at the end of the year.

Less Consumption of High-ticket Items
Recent data indicates price elevation has also shifted. In the past few years, more shoppers have been willing to purchase expensive merchandise. But rising inflation is diminishing buying power and eating away at savings. People are watching their spending and shying away from higher priced products.

The trend to spend has reversed. Consumers would rather save than shop. In the early days of the pandemic, people sheltered at home and upgraded their living spaces, televisions, and other creature comforts to make life indoors more enjoyable. Retailers are now flush with excess inventory. But millions of consumers are not in the mood to spend to take this stock off merchant’s hands.

Ways to move Excess Inventory
The easiest way to reduce the levels of excess inventory is to create promotions, offer discounts, and to adjust buying strategies. Store owners should regularly review sales in each category to identify what products are selling and those that have little demand. Shoppers who cannot find the items they want may seek them at other businesses. Closely monitory inventory is a way to keep it fresh and alert owners to move slow-moving products into a clearance bin. Acquiring new shoppers and retaining loyal customers is an ongoing process that centers around selling the right inventory.