Consultant Insight: Large retailers stock up on inventory ahead of the holiday season

Overall retailer inventories remained low in September, according to the latest Monthly Retail Trade and Food Services report from the U.S. Census Bureau. Current levels present a concern as retailers face delivery delays due to pressured supply chains, which could result in more stock-outs during the holiday season. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] Seasonally adjusted retail inventories declined 0.2% month over month, likely due to much of the inventory being in transit — that is, stuck on ships waiting to enter U.S. West Coast ports of Los Angeles and Long Beach. Retail inventories were up 0.4% year over year, according to the report. Consumer spending remains robust, outstripping available inventories. Retail sales increased 0.8% in September from August and were up 12.5% YoY compared to September 2020. As a result, larger retailers will likely benefit the most this holiday season due to their supply chain strengths, including their larger volumes that often help to ensure more favorable rates from logistics carriers. “Inventory increased 11.5% in preparation for what we expect to be a strong holiday season,” Walmart CFO Brett Biggs told analysts during the company’s third-quarter earnings call earlier this week. “The steps taken to mitigate transit and port delays have positioned us well, including adding extra lead time to orders, chartering vessels for Walmart goods, rerouting deliveries to less congested ports, and expanding overnight hours at key U.S. ports.” Meanwhile, Target COO John Mulligan told analysts that the company’s inventory was up 18% from a year ago. “Looking back to the pre-COVID period, our Q3 ending inventory has grown more than $3.5 billion since the end of Q3 2019, representing 31% growth over a two-year period,” he said. Williams-Sonoma’s CEO Laura Alber noted that the company had received 85% of its inventory for the holiday season. “When we have delays, customer service is our priority, which has resulted in declines in escalations, cancellations and calls into the care center,” Alber said. However, small- to medium-sized (SME) retailers often do not have the same volume power larger retailers do to command better transportation and logistics rates. As a result, for some of these smaller retailers, getting bumped from a vessel, a truck, airplane or another transportation mode in favor of a larger retailer can come as no surprise. The holiday season The National Retail Federation (NRF) expects record holiday sales during November and December, growing 8.5% to 10.5% above 2020 levels to between $843.4 billion and $859 billion. However, the holiday season may be a struggle for SME retailers, who may be at risk for inventory stock-outs. U.S. consumers would rather switch brands or retailers than wait for out-of-stock items, according to a survey from consulting firm McKinsey. Of the survey respondents, 62% reported that they could not buy at least one item due to availability over the previous three months. Of those who could not buy what they wanted, 39% said they would switch brands, while 32% went to another retailer. Only 13% said they would wait for the item to be back in stock. As such, McKinsey suggests that retailers encourage consumers to order early. Indeed, we’re seeing this already with many early “Black Friday” events from numerous retailers. Retailers should consider “prioritizing a positive and meaningful customer experience to strengthen their brand and reputation as they anticipate challenges ahead of the season,” according to McKinsey, citing children’s apparel retailer Carter’s as an example, which offered extra discounts on future purchases due to shipping delays. As long as sales remain strong, inventory issues will continue well into 2022, and for some retailers, perhaps even into 2023. Williams-Sonoma’s Alber noted during the company’s recent earnings call that “given the ongoing strong demand we are seeing across our business and the impact of the Vietnam delays, we do not expect full recovery of our inventory levels until the middle of 2022.”

Consultant Insight: Large retailers stock up on inventory ahead of the holiday season

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