US Retailers Struggling as In-Transit Inventories Increase
After months of dealing with inventory shortages and stockouts, US retailers are working to bring in more inventory this year. The objective is to prepare for any possible supply chain issues and to build up inventory to carry retailers through holiday season.
At the same time, inflation, rising gas prices, and economic volatility have begun impacting consumer behavior. The result is that inventory is rising faster than sales, carrying some important consequences for retailers and carriers.
Shifts in Consumer Behavior
Before looking more in-depth at current inventory levels, it’s worth taking a moment to look at notable shifts in consumer behavior. Data from multiple sectors seems to indicate that consumers are shifting back to “normal” or traditional, pre-pandemic patterns.
Items like building materials, garden equipment, and furniture are seeing decreased demand, causing inventory-to-sales ratios in these sectors to return to pre-pandemic levels. Across the board, there’s been a decrease in demand for big and bulky items like appliances, TVs, and furniture. The result is that while inventory levels generally remain low, some sectors are seeing a return to more normal inventory levels.
At the same time, demand for consumables and essentials remains high, continuing to rise. The bottom line is that a return to more normal pre-pandemic lifestyles, coupled with rising inflation and gas prices, has resulted in some notable shifts in consumer behavior that is impacting retailers and inventory levels.
Pressure on Retails
For many retailers, two things have happened simultaneously to impact inventory levels. Consumer behaviors shifted more quickly than anticipated and some inventory arrived faster than anticipated, resulting in overcorrection.
A recent survey of 18 retailers found that inventory was increasing quicker than sales. In fact, 11 out of 18 of those retailers saw the largest gap between inventory increases and sales increases since before the pandemic.
According to Target’s CEO, Brian Cornell, the retailer “saw a much higher than expected rate in transportation costs and a more dramatic change in our sales mix than we anticipated. This resulted in excess inventory, much of it in bulky categories, which put additional strain on an already stretched supply chain.”
While the retailers are trying to balance this increase in inventory, they’re also juggling ongoing supply chain disruptions. “We continue to see heightened in-transit inventory due to ongoing supply chain disruptions,” said Jill Timm, CFO of Kohls. “As a result, we have built-in additional order lead time to ensure we are meeting customer demand.”
It’s a difficult balance for retailers to strike as they attempt to anticipate shifts in consumer behavior, compensate for supply chain issues, and replenish exhausted inventories.
Impact on Carriers
Carrier demand continues to remain high. While there’s some question as to whether an increase in inventory will lead to depressed freight demand, there’s currently no reason for carriers to be concerned.
While some sectors are seeing overcorrections, others are seeing increased demand. Additionally, across sectors, rather than seeing sales plummet, we are seeing a return to 2019 levels. As a result, it’s likely that demand will remain steady throughout the third quarter of 2022.
At the same time, Covid-19 restrictions in China are increasing due to a current resurgence, putting more pressure on the already strained supply chain. With new lockdowns and mass testing being enforced, an interruption in the workforce will lead to additional supply chain disruptions ahead.
Stay On Top of Changing Conditions
The takeaway for retailers and carriers is that there are numerous variables impacting continued uncertainty in the months ahead. It’s unclear how much consumer behavior will continue to be impacted by inflation and economic volatility.
Similarly, it’s hard to anticipate how COVID-19 restrictions and supply shortages will continue to impact supply chains and inventory levels moving into the second half of 2022.
The best thing shippers can do is to stay informed, stay agile, and have a plan to deal with whatever circumstances arise. At Clear Freight, we are closely monitoring conditions and ready to provide your business with personalized logistics solutions that will help you navigate this uncertain time. Contact our team today to create your logistics plan.