The Massive Problem Plaguing All Retailers This Holiday
With the holiday shopping season just about in full swing, retailers are still contending with excess inventory that they can't offload due to inflation heavily constricting consumer budgets.
This article is more than 2 years old
As huge retail shops are getting ready for the upcoming holiday season, they have found a big problem – excess inventory. With the last quarterly earnings report coming in this week, retail investors will get a look at how retail shops are doing in terms of inventory rollover and discount expectations.
Global retail chains like Walmart and Gap have pre-holiday season sales to eliminate their excess inventory taking up room in the storerooms, as thanksgiving and Christmas stock will be arriving soon.
The last number of years have been hard for retail shops with the COVID-19 pandemic and then the “cost of living crisis” straight after. Investors want shops to balance their books in time to start fresh with a new year, which involves removing stale merchandise. With a recession looming and people having a lot less expendable money available, just balancing books may be a challenge.
Retail is one of the sectors of the market that have been hit the hardest as they keep having to change their business model throughout the last few years. During the pandemic, people started shopping in a new way involving less personal contact and more independent and internet-based shopping. But after the pandemic, people had enough of being isolated, and they now want that personal contact back again. Also, products that would have been big sellers in the pandemic are no longer flying off the shelves, which leaves excess inventory taking up space.
Most retailers put inventory orders a season in advance. With customers’ demands changing rapidly along with supplier and transit issues plaguing stores, it is a nightmare to know what stock to buy. Many retailers had made oversized orders due to supply issues, which left them with more inventory than they needed.
Some retailers are making drastic decisions, such as canceling inventory orders and cutting prices to clear the build-up of inventory. At the same time, others are cutting their profit outlook for the year by slashing their prices just to remove the weight of extra merchandise.
With the holiday season approaching, retailers are concerned that more than consumer spending will be needed to balance their books. They have noticed over the last quarter that people have been pulling back on spending their money on expensive items. Stock such as laptops and electrical goods have slowed down in sales, along with more casual clothing items.
Also, having excess inventory on show within a store is off-putting to consumers as it is overwhelming when looking for presents or just browsing. Retailers fear this will drive consumers back to internet shopping.
Most business analysts expect that the excess inventory headaches for retailers will persist for some time as it is not a quick fix and is dependent on consumers actually buying the goods. Retailers’ businesses took a massive hit during the pandemic, and they are still feeling the ripples of it now, with an enormous amount of overstock. Hopefully, the holiday season will bring out consumers and lift the pressure off these retail stores.
