Will overstocking get retailers through the holidays?
Big box retailers are pulling forward orders earlier than normal and aggressively investing in core items as supply chain bottlenecks threaten to lead to empty shelves over the holiday season.
In many cases, inventories are up double-digit percentage points compared to last year’s pandemic-depressed levels and also up over the same period in 2019.
Target inventories at the close of the second quarter were up 26 percent year over year. John Mulligan, COO, told analysts Target’s inventories are “well-positioned” to drive holiday sales against record year-ago gains, although the situation is not optimal.
“Our guests are still seeing empty shelves on some occasions,” he said. “In some of those situations, we’ve simply sold beyond our expectations, and our team is working quickly to secure additional quantities. In other cases, the vendors themselves are facing constraints in their ability to deliver product. And we’re collaborating with them to address these constraints together, securing as much product as possible on behalf of our guests.”
Speaking last week at Goldman Sachs’ conference, Lowe’s CFO David Denton said the home improvement chain has placed bigger orders for high-demand items and its inventory position is in better shape than it was six to 12 months ago.
At Best Buy, inventories at the second quarter’s end surged 55 percent year over year and 23 percent versus two years ago.
CEO Corie Barry told analysts merchants worked strategically to bring in as much inventory as possible during the quarter with actions like acquiring additional transportation, pulling up product flow and adjusting store assortment based on availability. She said, “There will continue to be challenges, particularly as it relates to congested ports and transportation disruptions. But our teams have set us up for as strong an inventory position as possible as we move forward into the back half of the year.”
A Wall Street Journal article noted that smaller retailers are often at a disadvantage when negotiating with suppliers or competing for space on container ships. Last year, lean inventories across the marketplace drove full-price selling to help many retailers achieve record profits.
- Target (TGT) Q2 2021 Earnings Call Transcript – Motley Fool/Target
- Lowe’s says inventory in better position in months amid supply-chain snafu – Reuters
- Best Buy (BBY) Q2 2022 Earnings Call Transcript – The Motley Fool
- Big-Box Retailers Battle for Inventory in Bet on Strong Holiday Sales – The Wall Street Journal
- Retailers’ inventories suggest restocking long way from finished – Freight Waves
- Some think supply chain disruptions are here to stay until 2022 – RetailWire
- How can retailers best navigate supply chain turbulence? – RetailWire
DISCUSSION QUESTIONS: Do you see more benefits than risks in aggressively stocking inventories in the current climate? What steps can retailers take to protect against the downside when operating with elevated inventory levels?