Unfortunately for retailers’ second quarter earnings, they are going to need to clear excess inventory of seasonal goods and apparel. Even stores like Walmart and Target — both adept at supply chain management — are carrying shockingly high levels of inventory although at least some of these may be in basic or commodity goods. I can think of several reasons why this has happened, and it has nothing to do with what seems to be healthy consumer spending: Stores like Old Navy simply ordered the wrong sizes, and other retailers ordered the wrong goods because they underestimated the demand for wear-to-work and “occasion” apparel. Late deliveries of seasonal goods last fall (because of supply chain issues) have left several stores with too much backward clearance inventory. Unfortunately, delays in spring and summer deliveries have compounded the problem. Even in stores selling non-seasonal goods, there is escalating resistance to inflation-based price increases, whatever the cause. Some tough decisions lay ahead for retailers: They will need to impose some price cuts now to clear out inventory, or… Read more »

The other issue is that there still is no consistency in the supply chain, so retailers were having to order more and more often because the waiting times differed from three months to three weeks and even then there was no guarantee the product they ordered was the product they were going to get or how much of it they were going to get. I think this will be an ongoing issue for a while longer until there is a more concrete supply chain solution than we have at the present time.

These are long term endemic issues in retail that are exacerbated by technology point solutions that are not in-sync and are not real time. POS inventory is disconnected from e-commerce inventory and only updates nightly. “Just in time” has become “just don’t run out” as pandemic hoarding disrupted the supply chain. Retailers need to create a real-time environment to survive against Amazon. A glass pipeline that gives them and their customers insight into where, when and how.

As they say, abnormal is the new normal. The inventory issues are definitely a condition of everything you list above – but it is more than likely that just as one disruption wanes, another will follow. I heard a term last week at the Blue Yonder ICON event – “Disruption fatigue.” So true. However now is the time for retailers to be looking at systems that are more predictive and can give better insights into inventory requirements – from demand at the consumer level all the way back to sourcing. No system is perfect but as things like AI/ML mature, retailers can be better at inventory planning.

Several retailers have strategically decided to hold more safety stock in fast consumables and apply a lot more analytics to anything seasonal or with a short shelf life. On the consumables, this is a good strategy until it isn’t, especially when interest rates and variable costs rise. Using AI and the like will make the forecasts for seasonal product better but still far from optimal due to a continued adjustment by consumers to the new economy. What’s the old saying – demand forecasting would be a breeze if you took shopper behavior out of the equation.

The high retail inventory balance is a temporary issue that is a result of two dynamics – overbuying and decreased demand. When retailers began facing supply chain issues in mid- to late-2021, many retailers bulked up their inventories to help avoid out-of-stocks. The overcompensating for supply chain concerns has continued and now that the pandemic has subsided, consumers are spending more on experiences than products. Retailers will be adjusting replenishment quantities as they sell off excess inventories, but they may also need to mark down some of the products, especially seasonal items.

Assuming that it is true that many retailers “are finding it hard to balance inventories” was there a time when they got it right for two seasons in a row? I think not. Regardless of new technology like AI or demand forecasting there is this thing called reality — like war, frozen supply chain, inflation, pandemic — against which the best models won’t help. The ultimate accuracy in inventory management would be to publish the catalog, sell one, manufacture it and ship it, and wait for the next order. Who wants to go back to that future?

Not all excess inventory is equally hazardous. Basic inventory with long shelf life can be handled with minimal margin impact. It’s a cash flow problem, not a margin problem. Excess fashion/seasonal inventory is going to be an expensive problem to solve. Liquidating current excess is one thing. Unfortunately that liquidation may or may not provide any lessons on balancing future supply and demand. Lots of apparel brands are now working on Spring 2023. What lessons can they take from current rate of sale — or lack thereof? It’s very tough to read “real” level of demand if a lot of price promotion is in effect. Sounds like conservative buying for Spring 2023 is in order.

Oh my — this is the age old dilemma of every retailer since the Main Street cobbler opened shop. Buy for demand and chase goods or stock inventory and find sales. Retailers have yet to master this balance, especially since the last 12-18 months of supply chain issues. The solution is not to find a crystal ball and anticipate consumer preferences, it is to be more agile and transparent. What does that mean? Retailers need full visibility to their supply chains from textiles to containers. The issue with this past year was mostly in the fact that it surprised retailers. They had no ability to pivot and alter merchandising strategies. Today there is no one solution. Retailers need to think along three lines: 1. digitizing the supply chain; 2. diversifying manufacturing across countries; 3. building an agile business model and organizational staff that can react and protect margins.

Excess inventories come as no surprise. Three factors likely contributed to this situation and there will be at least two key outcomes. This is by no means exhaustive, but not until we regain balance will a solid foundation be restored. The only advice I can offer to retailers is buckle in, weather the stormy ride, and learn from these lessons so they are not repeated in the future. Contributing factors: Pandemic buying frenzy – precipitated by supply chain pressures, retailers amassed inventory basically accepting anything and everything that was available; Workforce and logistic issues – moving products from warehouses to shelves is a monumental task when faced with labor shortages and rising transportation costs; Consumer behavior shifts (although this gets “credited” or “blamed” far too often) – omnichannel retail (AKA omnichoice) has required retailers to carry inventory in different places, different channels, and be supported by different last-mile delivery. Key outcomes: Consumers will win; markdowns and deeply-discounted merchandise will soon cascade across the retail landscape — sales will go up/profits will go down; Retailers will… Read more »

The supply chain disruptions, lack of continuity, and uncertainty around inventory availability have led to retailers building up safety stock levels. While the Q1 results were mixed, retailers have been challenged to keep up with the surging demands, which has contributed to the inventory balancing challenges.

Disruption may become the new normal as we move forward. More predictive, pragmatic, and AI-powered solutions will help balance inventory levels and add much-needed intelligence to a system where retailers are apprehensive about running out of stock. Unfortunately, quite a few retailers are not quite there in terms of fully integrated and predictive supply chain, demand forecasting, merchandise planning, assortment planning, allocation, and replenishment systems.

A more predictive and prescriptive approach is critical moving forward to ride out the ongoing supply chain disruptions.

My guess is that any store analyzing their GMROI will be in need of oxygen. Selective merchandising and deal buys on the biggest mistakes can add foot traffic and subsequently eyeballs on regular price items. If the inventory is housing undesirable items, it’s time to get it out. The old adage is true: inventory is not like wine, it doesn’t get better with time. Get the dollars now! Then start reinvestment in new products when available.

It is important to recognize that the increase in inventory is compared to last year when supply chain and pandemic issues dramatically reduced available inventory. As a result the change may not be as great as it appears. In addition, retailers purchased additional safety stock in order not to be caught shorthanded and to lock in prices in an environment where their costs may significantly increase due to gas prices and other factors.

As I read this piece I’m struck by the vague fluidity of the meaning of numbers. We are looking at quarter over quarter yet fighting a multi-year pandemic. Investors should not demand of retailers neat and tidy results in a pandemic. Worse, by obsessing over these numbers were investors to get their way they would do long term harm to the retailers. I’d hope we could adopt the long view in this situation – that old metrics are inappropriate during the pandemic.

Dr. Chris Caplice of MIT CTL once said “Managers don’t get fired for having too much inventory, but they will for having too little.” By no means am I saying that SCM leaders are not being responsible stewards; however given the increased uncertainty in the world leaning in on certain products may be prudent. Due to the inherent nature of variability throughout supply chains, I do believe that the remedy for this current issue may result in the pendulum swinging back to scarcity, and potentially then back to over-supply, before getting back to a global minimum. Generally more information sharing, to include point of sale data, is required far beyond one up and one down.

This is partly a result of retailers learning their lesson on shortages during the past two years and managing their inventories to overstock to avoid out-of-stock situations. That lesson caused more consumers to switch brands than anything else over the past two years. The challenge for retailers isn’t having the right predictive analytics tools and the right people to run them (although this is still an underdeveloped muscle for most retailers lacking both the tech and the experienced people). The challenge is the fluidity of the situation and the need to keep up with a rapid pace of change to manage those inventories. Unfortunately, even if consumer demand keeps up in one category it may not in another – especially as many consumers revert to pre-pandemic shopping behaviors. The fact is many retailers predicted poorly and ordered more of the wrong goods to meet the incoming demand. So yes, there will be more discounts. And yes, it will last for at least another quarter. I expect this won’t even itself out until the holiday shopping… Read more »

It all depends on how you are defining “longer-term.” Retail supply chains are not – to use a cliche – agile enough to optimize in a rapidly changing world. Too many retailers are still hoping we will get “back to normal” one of these days, but that ship has sailed forever. There is no good advice. Depending on what happens next any plans could end up being the wrong plan, even the most conservative ones. The trick is to become as agile as possible while understanding times like this often require being able to bend into a pretzel on a moment’s notice.

So much to unpack about the present overstock problem. First: Financial. Excess inventory is money standing still. This is just as true in a container ship anchored offshore, on a truck queued at the border, in a retailer’s D.C., or on store shelves. Free your cash or “agility” can never happen — no matter what high-priced consultants you hire. Second: Operational. Retailers mostly suck at ordering, as near as I can see. There are some notable exceptions in grocery where perpetual inventory, forecasting and replenishment are handled using computer automation, but even the shining stars of the industry were thrown off their game by the COVID disruption. I suspect matters are far worse in sectors that depend on overseas manufacturing commitments, long-lead-times, and fashion trends. Third: Structural. I can’t say this often enough. A supply chain that is built and fine-tuned for ultimate unit cost efficiency, scale, and centralization of process is inherently brittle. When one skewed container ship can close the Suez Canal for six days and disrupt the entire global shipping system, or… Read more »

The last few years have made retailers realize the importance of having access to new edge technology for keeping track of inventory levels. Analyzing data and adopting data-driven strategies is no longer a choice but has become the need of the hour. Now, when it comes to understanding the pattern of the prevailing inflation in the economy, I think it will soon settle down. Fuel prices have reached their maturity rates, and the problem with the inventory shortages has already been resolved, which has of course reduced the pressure on inflation up to a certain extent. To deal with inventory surplus retailers will eventually have to bring down prices which will simultaneously fuel up the demand. Everything revolves around the cycle of the economy, these issues will soon turn full circle, and once again we will have a more balanced situation.

This is not a surprise. Retailers have struggled for years managing inventory and it has become more and more difficult as more channels have been added. Disruption associated with COVID has on only added to the problems.

Visibility is key — the old saying that if you cannot measure it you cannot manage it. The problem is there are so many locations with different systems that getting a single view is tough. Retailers have to prioritise visibility first before they can do anything else.