‘Unprecedented’ high inventory levels could cool following major sales events – Footwear News
Just a few months ago, supply chain slowdowns and port congestion set up a system where demand far exceeded supply. As a result, retailers overcompensated and ordered more products sooner, just in time for consumers to cut spending amid rising inflation and changing habits.
As a result, retailers are reeling from what analysts describe as “unprecedented high inventory levels.
“Retailers significantly overestimated consumer demand when making inventory decisions for 2022,” UBS analyst Jay Sole noted in a recent note to investors. He added that consumer tastes have suddenly shifted away from casual and sportswear towards dressy items, which has left retailers stuck with too many of these underperforming products. This situation is the worst for department stores, but also problematic for non-price players.
However, major sales events like Target’s Deal Days and Nordstrom’s Anniversary Sale could be a big factor in helping retailers cut sky-high inventory.
In May, Target announced disappointing results for the first quarter of 2022 due to high fuel and transportation costs as well as excess inventory in its supply chain. As such, the company said it would take efforts to “adjust the size” of inventory for the remainder of the year, including additional markdowns, removal of excess inventory and cancellation of orders.
The company’s fourth annual Deal Day event in July will likely help unload some of that inventory, given that deals are expected to roll out across multiple categories. The event will take place during the same period that Amazon’s Prime Day is scheduled to take place.
Nordstrom said its inventory is currently higher than usual as it anticipates strong demand during its anniversary sale in mid to late July this year.
Back-to-school demand, which is expected to pick up around mid-July, will also benefit some retailers looking to get rid of excess inventory. According to retail tracking data from NPD, promotional activity had begun to pick up in the footwear market, particularly in the fashion category, by the end of May.
At Shoe Carnival, inventory was up about 20% in the first quarter compared to 2021, which CEO Mark Worden said would position the company “to win back to school.” At Genesco, Journeys’ parent company, chief financial officer and vice president Thomas George said higher than usual inventory due to late winter deliveries will give the company “a head start on sales. back to school and holidays”.
Executives from Kohl’s, Dick’s Sporting Goods and Academy Sports and Outdoors said in recent calls with investors that their strong stock positions will help them meet back-to-school demand this year.
“Our view is that it could take several quarters for the industry to reach the right size inventory levels,” Sole wrote. “The key variable is consumer demand. We have a bearish view of consumer demand and therefore expect industry adjustment to be more costly than many realize.