Will the “inventory crisis” in the US retail market continue until 2023?

Over the past two years, U.S. consumer demand for discretionary products such as apparel and home products has risen sharply. When retailers thought that this trend would continue in 2022, the harsh reality has come at a heavy price.

As consumers spend more of their budgets on experiences such as travel, and the cost of goods and services continues to rise, American consumers are holding off on buying discretionary goods in 2022. For example, furniture orders in May fell 41% compared with the same period last year, according to accounting firm SmithLeonard.

For retailers, forecasting errors have led to a large backlog of their merchandise. Target CEO Brian Cornell once said that consumers are becoming more sensitive to prices, paying more attention to and reacting more strongly to promotions, and are more hesitant to buy at full price.

To clear excess inventory, retailers have launched promotions, canceled new orders and hired liquidators, sacrificing profits to adjust inventory levels, which Walmart had at the end of the first quarter at $61 billion.

The inventory glut began to show up in the first quarter, when Walmart's revenue fell by $1.6 billion and Target's revenue fell 43% year-on-year. This is an important turning point in the period when the US retail market continued to grow at an extraordinary speed.

David Berliner, national leader of BDO's restructuring and turnaround services practice, said it was a classic supply and demand issue, with forecasting consumer demand becoming more difficult since the coronavirus pandemic.

Target Corp. said earlier this year that the categories leading sales have shifted, with toys and luggage seeing a rapid rise in demand. At the same time, categories like home furnishings that had seen record growth are starting to decline.

Data from the Ministry of Commerce show that furniture sales have been falling for several months this year compared with the same period last year. Categories where retailers predicted demand would increase, such as home furnishings and casual clothing, have seen a decline in consumer demand, leading to a serious backlog of inventory.

In fact, the overstocking caused by the mismatch in demand has been a major headache for retailers throughout the year, and retailers have been offering deep discounts in an attempt to clear their shelves. Due to their heavy promotions, retailers' profits have suffered. Due to the financial impact, retailers have had to pull back on some growth plans to focus on addressing the overstocking problem.

For example, several Old Navy stores scaled back the company’s inclusive sizing program to right-size inventory levels — a decision that drew criticism from social media users. Amazon has suffered warehouse closures, mass layoffs and a slowdown in its operational expansion plans this year as e-commerce sales have cooled.

However, Rebekah Kondrat, managing partner of retail agency Rekon Retail, said consumers are more likely to look for discounted items. But despite the massive discounts, retailers like Gap said it will continue to rely heavily on markdowns and discounts to address its $3.04 billion in inventory.

Kondrat expects retailers to continue discounting in the new year to solve the problem of excess inventory. But the biggest problem is that it is difficult to predict consumer behavior, so it is uncertain when the problem of excess inventory will be solved.

Editor✎ Ashley/

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