Big changes in the US holiday shopping season! Retail giants have difficulty overcoming the "inventory" barrier

As September begins, the U.S. is welcoming the holiday shopping season, which begins with Thanksgiving. Since the beginning of this year, the U.S. retail market has encountered multiple problems, such as inventory crisis and weak consumption, and the performance growth of major retail giants has declined. Against this background, this year's holiday shopping season will also usher in a year of change.

The biggest problem this holiday season: excess inventory

Currently, the U.S. retail market is facing the problem of overstocking and declining sales, which is a major problem entering the holiday shopping season. Not only offline retail giants such as Best Buy and Bed Bath, but also online retailers such as Amazon and Dollar General have reported rising inventory levels this summer.

In 2020 and 2021, major retail companies worked hard to keep inventory levels in line with consumer spending. But consumer demand suddenly fell earlier this year, and large retailers missed demand forecasts and were forced to reduce inventory by canceling orders, reducing prices or recalling low-selling items.

Still, inventory levels remain elevated, with many large retailers reporting in their second-quarter earnings that they were carrying more merchandise than in the previous three months.

The bullwhip effect continues, exacerbating the inventory crisis

The bullwhip effect is exacerbating the current inventory crisis. The following example illustrates how this effect works.

Suppose a retailer estimates that 10 people will buy an air fryer next month. Because more people are likely to buy during the holiday season, the retailer decides to purchase 20 air fryers from a distributor.

Therefore, the dealer received an order for 20 air fryers. For the same reason, the dealer also decided to increase the purchase volume. At the same time, due to the expensive air freight during the holiday season last year, the salesperson may have to purchase in bulk in advance.

Finally, the distributor places an order for 40 air fryers with the manufacturer. Since production takes time, the manufacturer predicts increased demand during the holiday season and decides to produce 80 air fryers. Finally, the distributor ends up with 80 air fryers in stock when demand is only forecast to be 10.

However, since the stimulus checks ran out, no one was buying air fryers. That’s why retailers ended up having to mark down their excess inventory and inventory levels remain high.

The demand direction is unclear and the overall supply is difficult to control

For major retailers, planning orders for the holiday shopping season this year is more difficult. The chaos of mortgage rates has also made consumer demand more unpredictable, and even giants such as Target, Walmart and Amazon have become more cautious.

According to the usual trend, this is the peak import season for the United States, and containers filled with holiday shopping season goods usually arrive at U.S. ports in September and October. However, as retailers are more cautious about peak season consumer demand, U.S. ports have seen the lowest weekly seaborne import cargo volume since June 2020.

A mistake in either direction could be costly for retailers.

If goods arrive too early, they may need to sit in warehouses for a long time, and retailers must predict what will be needed earlier than usual. Given the current economic situation, such predictions are difficult. If goods arrive too late, merchants may need to spend extra cash to store all the inventory.

Inventory supply has become more unpredictable not only during the holiday shopping season but also during all peak sales seasons, which could mean that a major retail shift brought on by economic turmoil has already begun.

Editor✎ Ashley/

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