Pandemic headache: US companies are still struggling with inventory

More than two years into the coronavirus pandemic, U.S. businesses are still struggling to manage inventory amid a feast-or-famine cycle caused by fickle consumer demand.

“We have way too much inventory right now,” said Ginny Pasqualone, chief executive of Sparkledots, a children’s clothing manufacturer.

“It’s important that we have a wide selection of merchandise for our customers to choose from,” she said, but store footfall has been hit by inflation concerns, with some customers “very scared they won’t not survive another recession”.

For now, Sparkledots is holding more goods in stock, but this is tying up the company’s capital and limiting its ability to increase its workforce by 18 workers. “It hurts our growth going forward,” Pasqualone said.

This is the dilemma that affects businesses of all sizes.

Major chain stores like Walmart, Target and Macy’s have admitted in recent weeks that they are misinterpreting consumer habits, leaving them with excess inventory of appliances, casual clothing and bicycles.

Bikes were in short supply at the start of the pandemic, prompting surprisingly large orders, said Wayne Sosin, owner of Worksman Cycles, a New York manufacturer best known for its tricycles.

“Retailers bought everything they could as bike sales would continue to see unprecedented demand,” Sosin said. “It was so obvious to me that (it) wouldn’t last.”

Still, Sosin said demand remains strong in parts of the business, putting pressure on the supply of some key bike parts.

Unexpected change

Scorching consumer demand since 2020, fueled by government pandemic relief programs, has led to product shortages and backlogs at seaports.

“Business can no longer rely on the idea that you are going to have this easy, just-in-time inventory and you can only keep the stock you need,” said Phil Levy, economist for logistics firm Flexport. . .

Businesses don’t know how much binge buying during the pandemic will persist and for what goods.

“The way we tend to predict things is to look at past patterns,” Levy said. “But we don’t have data on how consumers behaved during the last five major modern pandemics.”

Over the past quarter, big-box chain Target saw sales of appliances, apparel and other goods slow as consumers shifted spending toward travel and other service-oriented consumption.

“We didn’t anticipate the magnitude of this change,” Target chief executive Brian Cornell said on a conference call with analysts.

As a result, Target had bought too many televisions and too much outdoor furniture.

Similarly, department store chain Macy’s was caught off guard by a 20% decline in sales of casual wear and home goods in the most recent period, compared to the previous quarter.

At the same time, “supply chain constraints have eased,” unexpectedly increasing shipments of goods, said Macy’s chief executive Jeffrey Gennette.

‘Jokers’

Retailers have adopted different strategies to deal with a glut of merchandise.

Target moved some of its merchandise outside of stores to temporary storage facilities, while liquidating seasonal merchandise that is no longer in demand.

Others plan to offer more items at reduced prices. Clothing chain Urban Outfitters expects promotions to increase “not just in the second quarter, but throughout the year and over the holiday season,” chief executive Richard Hayne said.

The consumer remains the “wild card,” said Brian Yarbrough, an analyst who tracks consumer businesses at Edward Jones.

Demand for goods has remained fairly robust even as consumers spend more on services and face inflation, Yarbrough said.

Other unknowns include the state of shipping between Asia and the United States. Will U.S. West Coast ports face delays again, or even a possible strike due to high-stakes labor negotiations this summer?

“How long will it take to ship freight from Asia to the United States to have products on the shelves this fall?” Levy wonders. “You just don’t know.”

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