Discounts and sales that disappeared last year amid the supply-chain crisis may soon make a comeback as retailers suddenly find themselves with excess inventory
- A major factor driving higher consumer prices has been the unpredictability of the supply chain.
- With fewer product choices, retailers could sell inventory without offering traditional promotions.
It's no secret that supply-chain snags and growing inflation have pushed consumer prices to new highs in the past year, but there's another less obvious factor contributing to higher costs: companies offered fewer discounts.
Inventory shortages allowed retailers to move away from traditional promotions designed to clear out overstock, selling more stuff at full price and leaving shoppers with fewer options at higher prices.
But a shift could be underway as companies once again find themselves with excess inventory.
In an attempt to escape the unpredictability of shipping last year, many retailers ordered even more aggressively to meet robust consumer demand. Then, as port bottlenecks began to ease, it started to catch up with them — leaving them with a glut of inventory in a phenomenon known as the "bullwhip effect."
In recent earnings calls, retailers including Walmart, Target, Kohl's, and Dick's reported that their inventories surged by roughly 40% compared to the year prior. Taken together, these excess inventories represent several billions of dollars worth of overstocked products taking up valuable space on shelves and in warehouses.
The question of what to do with all this stuff is one with answers that may bode well for consumers.
Target and Walmart, for example, both reported lower-than-expected profits last quarter, due in part to a return to using markdowns to keep fresh products on the shelves and to attract more shoppers.
"We'll work through most or all of the excess inventory over the next couple of quarters," Walmart CEO Doug McMillon told investors on the company's first-quarter earnings call.
"While these were difficult decisions, we believe they'll pay off in the long term, given that building long-term loyalty remains our top priority," Target's Chief Growth Officer Christina Hennington told investors last week, speaking of the choice to cut into the quarter's profit margin.
Meanwhile, discount retailers Burlington and Ross reportedly saw closeout inventories tick up significantly in early March, Credit Suisse equity analyst Michael Binetti told the Wall Street Journal.
Despite the movement in certain retail categories like apparel and home goods, the numbers don't suggest there will be a widespread comeback of the days of mega-deals and promotions just yet.
For one thing, the chaos of the past year has given companies a new appetite to keep more products in stock, rather than counting on just-in-time deliveries to work smoothly.
Plus, the latest consumer spending figures show that shoppers are still spending — they're just starting to do so on different things. Target reported less demand for TVs, and more sales of luggage. Airline bookings are soaring.
It might not be much, but it could give shoppers some measure of relief from rising prices in the coming months.