Shoppers have shifted their spending from casual clothing and home goods, which were in demand during the height of the pandemic, catching some retailers off guard and leaving them with extra items that need to be marked down. Was.
Gap Inc., Macy’s Inc. And at other chains, the scenario this year is the reverse from the past two years, when increased consumer demand and supply-chain delays created a shortage of goods, prompting retailers to reduce discounts and move forward. got permission. Prices went up.
Macy’s has plenty of casual clothing, activewear, home wear, and tableware, as shoppers in recent weeks bought more flashy clothes to wear to the office or social events. Macy’s chief executive Jeff Gennett said in an interview in late May that the change was dramatic and happened faster than the company expected.
Macy’s net sales rose 13.6% in the spring quarter compared to a year ago. But Macy’s said markdowns to clear excess inventory will impact profit margins going forward and warned of higher promotional levels across the industry as other retailers do the same.
“It’s classic supply and demand,” said Mr. Janet. “Too much supply, not enough demand.”
Many retailers had a 2021 banner as consumers emerged from the pandemic and started going out more often for work or social engagement. Buyers were flush with cash from their savings and government stimulus checks. With travel and entertainment still restricted, they had less room to spend that money. The big beneficiaries were companies that sold apparel and home goods. Constrained supply chains put many items in scarce supply.
Those tailwinds are reversing this year. Inflation is driving consumers to spend more on necessities such as food and fuel, as well as using more of their disposable income for experiences such as travel, entertainment and eating out. This is leaving fewer dollars for discretionary goods like apparel and home goods, as supply chains loosen up and goods become more plentiful.
“There was a lot of miscalculation about how fast this shift would go the other way,” said City analyst Paul Lejuez.
Walmart Inc.’s inventory rose nearly 33% in the first quarter as the largest US retailer misjudged changes in consumer spending, contributing to markdowns and weaker profits.
The increase also reflected higher cost of goods due to inflation, officials said, coupled with a sudden improvement in the movement of goods through US ports as the company experienced supply-chain shocks and out-of-stocks in previous quarters. Had decided to buy Beech products aggressively. ,
At Walmart’s annual investor meeting on Friday, the company’s U.S. chief John Furner said that about 20% of the inventory is items the company wishes it didn’t have, but most of the rest are items it needs to be restored or used for years. required for later.
“What’s going to be part of this quarter and probably the next, probably a few quarters would be the best way to describe where we want to be,” Mr. Furner said.
Analysts expect excess inventory this year to dent retail profits and potentially send the industry downwind of the discounts that plagued it before the pandemic.
“The problems retailers have been facing over the past few decades are coming back. We are starting to see them chasing growth at the expense of profits,” said Shimon Siegel, an analyst at BMO Capital Markets.
The problem among apparel retailers is serious. Gap Inc., American Eagle Outfitters Inc. and Urban Outfitters Inc. Those include chains that said they were sitting on a lot of inventory and would have to raise discounts to make up for the excess withdrawals.
Gap, which owns the Gap, Old Navy and Banana Republic chains, ended April with 34% more inventory than the same period last year. At American Eagle, inventory jumped 46%, and at Urban Outfitters it was up 32% from a year ago.
Some of the increase has been on account of imports that were disrupted, leaving 2021 inventories below normal levels. Inflation is also a factor, but units are also up. For example, at American Eagle, the number of units climbed 24% over the past year.
Melanie Marin-Efron, the company’s head of finance, told analysts on May 25, “Our current inventory levels, mostly in the Urban Outfitters brand in North America, are higher than we’d like and have higher markdowns than last year’s lows. Maybe.” ,
There is some bloat due to late inventory as a result of factory closures and other supply-chain delays. Abercrombie & Fitch Company said it conducted clearance sales to get rid of holiday items that were late in the Hollister and Gilli Hicks brands due to factory closures in Vietnam.
But there are other factors at play. Retailers are placing orders with factories first to ensure the goods arrive on time. Some officials said this made it difficult to predict demand and style trends.
“We were defining customer trends too early in the process and unable to pursue the right fashion choices,” Gap chief executive Sonia Singhal recently told analysts.
Instead of trying to sell all the extra items at lower prices right away, some retailers are packing items for sale at a later date. This strategy was being used for years by discounters like TJ Maxx. Now, it is going mainstream.
Kohl’s Corp., which has 40% more inventory than a year ago, is packing pajamas and fleece that arrived late with hopes of selling them in the fall.
Gap is doing the same. “We are packing and holding fashion inventory that we think we can sell next year,” said Gap’s head of finance, Katrina O’Connell. “Instead of trying and actually pushing it through the system at a lower margin.”
This story has been published without modification to the text from a wire agency feed