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Retailers Seek a Holiday Inventory Balance

Stores and businesses that have been ordering items earlier and in larger volumes in anticipation of supply-chain-related slowdowns are balancing on a fine line between the possibility of lost sales and the risk of getting stuck with excess inventory, according to The Wall Street Journal (subscription).

High stakes: “The stakes for retailers during the critical fourth quarter, when sales and profits traditionally peak, are high this year because of supply-chain volatility, transport bottlenecks and the uncertain impact of the omicron variant of COVID-19 on shopper behavior.”

  • The tendency among businesses has been to over- rather than underorder, according to Ted Stank, supply chain professor at the University of Tennessee’s Haslam College of Business.

Demand up, stock down: U.S. consumer demand has been picking up going into the holiday season, but inventories have been low.

  • Store sales rose 14% during the 2021 Thanksgiving weekend compared to the same weekend last year, but in September, U.S. retailers had $602.7 billion in inventories, compared with $664.4 billion in September 2019, according to the Commerce Department.
  • “[R]ecord backups of container ships in the U.S. and logjams at other distribution chokepoints suggest big volumes of goods are still tied up in supply chains. That leaves many businesses in limbo as Christmas approaches and facing a possible flood of out-of-season merchandise in the New Year.”

Hedging bets: While many large retailers loaded up early on products and even chartered their own ships to ensure on-time inventory arrival, smaller businesses have been betting on backlogs and ordering double or even triple their usual volumes.

  • The move is financially risky, however. “Merchants that end up with more product than planned often rent out extra warehouse space until they can liquidate the inventory. Such short-term arrangements tend to be more expensive than standard leases, and the value of the inventory can drop quickly, said Erik Trum, retail practice lead at Atlanta-based consulting firm Insight Sourcing Group LLC. Mr. Trum said retailers should already be planning for January’s leftovers.”
  • Given rising supply-chain expenses, not all retailers will be discounting that extra, seasonal stock. 
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