Thursday, 6th October, 2022
Thursday, 6th October, 2022

Managing inventories a pandemic headache for US businesses

More than two years into the Covid-19
pandemic, American businesses are still struggling to manage their
inventories in a feast-or-famine cycle caused by fickle consumer demand.

“We have way too much inventory right now,” said Ginny Pasqualone, chief
executive of Sparkledots, a children’s clothing manufacturer.

“It’s important that we have a large selection of merchandise that our
clients can choose from,” she said, but store traffic has been hit by
inflation concerns, with some customers “very scared that they’re not going
to survive another recession.”

For now, Sparkledots is holding more goods in inventory, but that ties up
company capital and limits its ability to add to its 18-worker staff.

“It sucks our growth for the future,” Pasqualone said.

Such is the dilemma affecting businesses of all sizes.

Large store chains like Walmart, Target and Macy’s have acknowledged in
recent weeks that they misread consumer patterns, leaving them with excess
supplies of appliances, casual clothing and bicycles.

Bicycles were a hot commodity early in the pandemic, prompting surprisingly
large orders, said Wayne Sosin, owner of Worksman Cycles, a New York
manufacturer best known for its tricycles.

“Retailers bought whatever they could as if bike sales would continue to have
unprecedented demand,” Sosin said. “It was so obvious to me that (this) would
not last.”

Still, Sosin said demand remains strong in some parts of the business,
placing stress on supplies of some key bicycle parts.

– Unexpected shift –

Torrid consumer demand since 2020 fueled by government pandemic relief
programs has led to product shortages and backlogs in seaports.

“The business can no longer count on the idea that you’re going to have this
easy, just-in-time inventory and that you can only keep stock on hand that
you need,” said Phil Levy, an economist for logistics company Flexport.

Companies are unsure how much the outsized buying during the pandemic will
persist and for which goods.

“The way we tend to predict things is by looking at past patterns,” Levy
said. “But we don’t have data on how the consumers behaved during the five
recent major modern pandemics.”

In the most recent quarter, the big-box chain Target saw sales of appliances,
clothing and other goods slow as consumers shifted spending to travel and
other service-oriented consumption.

“We didn’t anticipate the magnitude of that shift,” Target Chief Executive
Brian Cornell said on an analyst conference call.

As a result, Target had bought too many televisions and too much outdoor
furniture.

Similarly, department-store chain Macy’s was caught off guard by a 20 percent
drop in sales of casual clothing and housewares in the most recent period,
compared with the prior quarter.

At the same time, “supply chain constraints relaxed,” unexpectedly boosting
deliveries of merchandise, said Macy’s Chief Executive Jeffrey Gennette.

– ‘Wildcards’ –

Retailers have adopted different strategies for dealing with a glut of goods.

Target has moved some of its goods outside of stores into temporary storage
facilities, while liquidating seasonal merchandise no longer in demand.

Others plan to offer more discounted items. Apparel chain Urban Outfitters
expects promotions to increase “not just in the second quarter, but
throughout the year and into the holiday season,” said Chief Executive
Richard Hayne.

The consumer remains the “wildcard,” said Brian Yarbrough, an analyst who
follows consumer companies at Edward Jones.

Demand for goods has remained fairly robust even as consumers spend more on
services and contend with inflation, Yarbrough said.

Among other unknowns is the state of ocean shipping between Asia and the
United States. Will ports on the US West Coast again struggle with delays, or
even a possible strike due to high-stakes labor negotiations this summer?

“How long will it take to ship freight from Asia to the US to have stuff on
the shelves this fall?” wonders Levy. “You just don’t know.”

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