Price cuts, profit cuts! US retailers are in deep inventory crisis

Price cuts, profit cuts! US retailers are in deep inventory crisis

According to foreign media reports, due to weakening consumer demand in certain categories, leading US retailers such as Walmart and Target are facing a serious inventory crisis . Warehouse capacity across the United States remains tight and inventory of goods continues to accumulate .

 

Just this week, Walmart announced a reduction in its second-quarter and full-year profit forecasts for fiscal 2023. This shows the impact of high inflation on consumers and the shift in consumption patterns, and even leading retailers cannot avoid the impact.

 

Walmart said that it must lower the prices of goods to reduce excess inventory. In addition, Walmart expects that the department store products in the US market will face greater pressure in the second half of the year.

 

Coincidentally , Target also recently announced a reduction in its second-quarter profit forecast due to excessive inventory and declining demand for products such as small appliances .

 

Data showed that Target 's merchandise inventory in the first quarter of this year increased by 43% compared with the same period last year , so it had to announce plans to reduce excess inventory, implement additional price cuts on products, and cancel some orders.

 

In response, Target CEO Brian Cornell said that the surge in costs in the first quarter of 2022 showed little sign of easing , confirming investors' biggest concerns about the outlook for inflation.

 

 

According to Warehouse Quote’s latest Warehouse Pricing Index ( WPI ) , the current tight warehouse situation in the United States is unlikely to change in the short term . In the United States, the national warehouse vacancy rate is about 3%, while only 1% of the available space in the port market .

 

Ben Hagedorn, CEO of Warehouse Quote , noted that before Walmart announced a profit cut this week, rent prices for warehouse space in the United States had increased 20% year-on-year , with imported goods taking up a large amount of warehouse capacity.

 

Hagedorn said that what is being stored in warehouses are typical seasonal items and durable goods, such as appliances. This year, durable goods are being stored a little longer than initially expected . In addition to the carryover from last year's holiday season, this time of year is also the time to prepare inventory for holiday sales in advance.

 

Some major retailers that reported high inventory levels said they were comfortable with increased inventory and were not facing markdowns. In late May, Dicks Sporting Goods reported a 40.4% increase in inventory levels as of April 30 compared with a year earlier, but said it was closely controlling inventory levels and would not have excess merchandise or markdowns.

 

Dick's chief executive Lauren Hobart described inventory levels of more than 40 per cent in late May as " healthy " .

 

The WPI shows that warehouse prices in the Southwest and Northeast are leading other regions in rising prices . Goods that were previously stored in California are being shipped to warehouses in other places such as Arizona, Texas and New Jersey , causing freight rates in these regions to surge.

 

Industry insiders said the biggest difficulty they face is finding additional industrial storage space to support and handle the large number of containers.

 

 

In addition to declining consumer demand , labor shortages are also affecting U.S. warehouse vacancy rates.

 

Midwest Warehouse Network Partners WPI said labor rates increased 23% year-over-year (Q1 2021 to Q1 2022). In Michigan, labor shortages have resulted in an average of 5% of job openings per month.

 

WPI said warehouse and warehousing job demand has already surpassed trucking jobs, and it expects labor shortages to continue to impact warehouse capacity issues through 2022.

 

Data from a Citigroup survey of 18 major retailers in the United States showed that in the three months ending May 22 this year, inventory growth at 11 retailers was 10 percentage points higher than sales growth , exceeding the peak in 2019 before the outbreak of the epidemic .

 

In the two years before the outbreak of the epidemic, e-commerce was unstoppable and traditional retail was declining , so retailers began to vigorously develop online. However, only one year later, the financial crisis came without warning, consumers lost their desire to consume, and the previous "untimely supply" became the current "unsale", with products piling up and warehouses bursting . Destocking has become a top priority for major retailers .

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