What retailers are saying about....inventory
Retailers and wholesalers are bringing in fresh inventories to stir springtime sales. Indeed, many retailers noted success in drawing down inventories during the holiday season. However, many of these retailers had to resort to mark-downs, at the expense of revenue, to move out most, if not all, inventories that filled up warehouses and arrived at inopportune times due to transportation delays throughout 2022.
“We made progress on both our owned and retailed inventory in the fourth quarter but have more work to do. The teams are focused on clearing inventory in addition to supporting our innovation. This will impact our growth rates and profits, most notably during the first two quarters of the year,” Toy retailer Hasbro’s CEO Chris Cocks told analysts on February 16.
“Given the uncertain environment we are executing with agility, we took action starting in Q3 to clear excess inventory and optimize our product mix. As a result, we are now in a much healthier position with inventory levels down 15% from last year and in line with 2019 levels…This was the right strategy to better position our inventory levels for 2023. We implemented more markdowns than we had initially planned to achieve our goal. This was compounded by the softening trend, excess inventory levels, and promotional intensity in our sector. As a result, our margins were lower than expected in the fourth quarter,” Nordstrom’s CEO, Erik Nordstrom told analysts on March 2.
Indeed, inventory declines in December and only small gains in retail and wholesale inventories in January suggest that retailers and wholesalers are clearing out older inventories and returning to some semblance of ‘normalcy’ as the market heads towards the second quarter. However, sales remain uncertain. According to the latest US Census Bureau’s Inventory to Sales Ratio data (March 15), retail sales declined double digits, 16.5%, in January, and merchant wholesaler sales declined 7% for the same period.
But one thing retailers do not plan to return to are markdowns and promotions.
“As it relates directly to the question about the level of promotion, we continue to be steadfast on not going backward in terms of a promotion. Our strategy is to leverage our loyalty program and to entice consumers at their tier level based upon their spend, and we're going to continue on that front as we move forward throughout the year, Chico’s FAS CEO Molly Langenstein told analysts on Feb 28.
“We are also enhancing our capabilities to manage inventory with greater precision at the unit level through investments in RFID and the shift to cost accounting for internal merchandising. These capabilities will help us deliver a fresh and relevant assortment at the store level for our customers. It will also improve our ability to buy, allocate and track merchandise across our network, provide us greater visibility in the profitability at the unit level, increase efficiency, and reduce shrinkage,” Nordstrom’s President and Chief Brand Officer, Pete Nordstrom, told analysts on March 2.
“Our disciplined approach to inventory management and pricing signs should result in lower markdowns and promotions year-over-year. We will continue to refine location-level pricing and expand machine-learning pricing capabilities to automate strategic promotions from vendor direct inventory to owned inventory. Partially offsetting these benefits is the lapping of ticket increases in 2022 that we do not anticipate repeating,” Macy’s CFO Adrian Mitchell told analysts on March 2.
Meanwhile, some lessons learned during the holiday season and some 2023 inventory outlooks were provided on some earnings calls:
“We are committing to planning inventory down mid-single-digits percent going forward. We will also adjust how we mark our goods, getting rid of excess inventory or slow-selling items on a more even flow throughout the year, instead of waiting until the end of a season,” Kohl’s CEO Tom Kingsbury told analysts on March 1.
“Our U.S. wholesale partners continue to tightly manage their own inventory levels and limit their receipts,” Guess interim CFO Dennis Secor told analysts on March 14. “We expect retailers will prioritize maintaining tighter inventories than last year. Cleaner inventories among retailers should tighten the competitive environment and help to lessen the use of markdowns, especially in the U.S. But it will also have implications on the top line in our wholesale business as we consider those retailers who carry our products,” Secor said.
“We expect wholesale shipping trends to remain challenging in the quarter, with large accounts managing their inventory levels tightly, particularly in the Americas and in Europe… from a balance sheet perspective, we are expecting to reduce working capital in 2023, primarily through working our inventory levels down throughout the year. We aim to achieve this through reductions in inventory receipts as well as through initiatives to improve our end-to-end supply chain operations. The combination of these activities is expected to significantly improve our cash flows in 2023, Fossil Group’s CFO, Sunil Doshi, told analysts on March 8.
“As we look forward to fiscal ‘24, we believe that the supply chain will be more predictable, allowing more precision regarding delivery timing and inventory levels. Year-over-year inventory compares will be volatile due to the challenges in the supply chain during fiscal 2023. Our expectations are for year-over-year inventory growth in the first half of the year and year-over-year declines in the second half of the year,” Hibbett’s Executive Vice President of Merchandising, Jared Briskin, told analysts on March 3.
As retailers and wholesalers work down existing inventories and introduce fresh, clean inventories, the willingness of consumers to spend remains questionable, particularly as many retailers plan to avoid markdowns and promotions. We’ll see how a little to no markdowns and promotions strategy work - consumers always are on the hunt for bargains, and I imagine that will continue regardless of the environment.
The longer it takes to clear out inventories, the longer it will take to place new orders with overseas manufacturers, and then….well, you know the rest of the supply chain story from here…😉
-Cathy
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I wear a number of hats these days. Catch my twice-a-week column on air cargo, freight forwarding, and the express markets, and the occasional podcast on Air Cargo Next. I’m also helping out the Reverse Logistics Association as a research manager, and at JOC, I help out as a research analyst and write a weekly LinkedIn newsletter, Freight Forward, summarizing JOC articles and providing an outlook for the week ahead.
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