- An important factor behind higher consumer prices is the unpredictability of the supply chain.
- With fewer product choices, retailers can sell inventory without offering traditional promotions.
- Now some companies have overstocks, which can lead to the return of discounts.
It’s no secret that supply chain hitches and rising inflation have pushed consumer prices to new heights in the past year, but there’s another less obvious factor contributing to higher costs: companies offered fewer discounts. .
Inventory shortages allowed retailers to move away from traditional promotions designed to clear excess inventory, sell more stuff at full price and leave shoppers with fewer options at higher prices.
But there could be a shift as companies face new inventory surpluses.
In an effort to escape last year’s shipping unpredictability, many retailers ordered even more aggressively to meet strong consumer demand. As the bottlenecks in the harbor started to diminish, it started to overtake them – leaving behind an abundance of inventory in a phenomenon known as the “bullwhip effect.”
In recent earnings calls, retailers including Walmart, Target, Kohl’s and Dick’s reported that their inventories are up about 40% from the year before. Taken together, these excess inventories represent several billion dollars worth of overstocked products that take up valuable space on shelves and in warehouses.
The question of what to do with all this stuff is one with answers that can predict well for the consumer.
Target and Walmart, for example, both reported lower-than-expected earnings last quarter, partly due to a return to using price cuts to keep fresh produce on shelves and attract more shoppers.
“We will be processing most or all of the excess inventory in the coming quarters,” Walmart chief executive Doug McMillon told investors during the company’s first-quarter earnings call.
“While these were tough decisions, we believe they will pay off in the long run as building long-term loyalty remains our top priority,” Target’s Chief Growth Officer Christina Hennington told investors last week, speaking of the choice to break into the quarter’s profit margin.
Meanwhile, discount stores Burlington and Ross reportedly saw close-out stocks rise significantly in early March, Credit Suisse stock analyst Michael Binetti told the Wall Street Journal.
Despite the movement in certain retail categories such as clothing and homewares, the numbers do not suggest a widespread comeback from the days of mega deals and promotions.
For starters, the chaos of the past year has given businesses a new appetite to keep more products in stock, rather than relying on just-in-time deliveries to run smoothly.
In addition, the latest consumer spending figures show that shoppers are still spending money – they are just starting to do this on several things. Target reported less demand for TVs and more luggage. The number of bookings with airlines is increasing.
It may not be much, but it could give shoppers some relief from rising prices in the coming months.