Here’s Where the Inventory Shortages Are, and Where Retailers Are Overstocked, by Retailer Category

Here’s Where the Inventory Shortages Are, and Where Retailers Are Overstocked, by Retailer Category

It’s still supply chain chaos for retailers, but different retailers face different kinds of chaos.

By Wolf Richter for WOLF STREET.

Now there are stories about retailers suddenly being “overstocked”, and shortages becoming glut, and suddenly people are already seeing supply chains miraculously fixed or whatever. But overall inventories at retailers are still very low, and in the largest category of retailers, auto dealers, inventories are desperately low, and they are low at other categories of retailers, but general merchandise retailers, like Walmart and Target are suddenly inundated with some types of merchandise.

What happened at these general merchandise retailers, and a few others, is that eternally long lead times, roadblocks, and chaos delayed products, and when they finally got there, consumers had moved on. And these retailers ran out of things consumers had moved on to and overstocked things consumers were no longer interested in.

Overall retail inventories, in terms of months supply, are still near record lows.

Having the wrong inventory on hand is a classic retail problem. To minimize that risk, retailers have shortened their supply chains and are delaying important product decisions until the last minute. And then the pandemic came along, and that solution became a huge problem, and retailers had to adapt on the fly. And some categories of retailers have been caught on the wrong foot and are overstocked, while many other categories of retailers have very tight inventories or shortages, including the largest category of retailers, auto dealers, which are still out of inventory. The overall ratio of inventory to sales, or months’ supply, at retailers has improved only slightly to 1.18 months’ supply:

Dollar inventories = skyrocketing cost inflation, not rising inventories.

Inflation for goods, which is what retailers sell, has been much higher than the headline CPI. For example, wholesale prices for used vehicles, which become the cost of inventory for dealers, increased 35% to 45% year over year between October of last year and February of this year. These cost increases have sent dollar inventories skyrocketing, although used vehicle inventories in terms of vehicles remain tight and have actually decreased in the last three months.

What matters: supply for months.

To exclude the impact of rising costs of goods and get an idea of ​​what actual inventory levels are relative to sales, we looked at the “inventory-to-sales ratio,” which is a classic industry metric that shows how many months it takes to sell the available inventory at the end of the month at the current sales rate.

Last week, the Census Bureau released retail inventory data through April. The end of April is also when the first fiscal quarter ends for most retailers, including Walmart and Target.

Let’s look at it by retailer category, because there are big differences.

In car dealerships, the largest category of retailers, Representing in normal times more than 35% of total retail inventories, inventories remain desperately low, at 1.28 months’ supply, down from about 2.2 to 2.4 months’ supply before the pandemic. And they have barely made any progress:

Car dealers are now wrestling with another problem: Big trucks and SUVs were all the rage in 2020 and 2021 and early 2022, and no one had any stock due to semiconductor shortages. Automakers prioritized the production of these vehicles because they are much more expensive and profitable than smaller vehicles, and if they can build only a limited number of vehicles due to semiconductor shortages, they would build the most expensive and profitable ones to maximize their revenue. and benefits, which they did.

Then gas prices started rising earlier this year, and suddenly consumers were chasing cheaper cars, compact SUVs and hybrids, and now dealerships are out of them, almost all gone from inventories, while the vans start piling up. on some brands. But overall new vehicle inventories remain desperately low.

The number of new vehicles on dealer lots, according to data from Cox Automotive, has plummeted 70% since 2019, to just 1.13 million vehicles at the end of May. Many models, especially now cheaper vehicles, have essentially disappeared from inventory.

The number of used vehicles on dealer lots, at 2.47 million vehicles is tight and below pre-pandemic levels, but there is currently enough supply for the lower selling rates, which are being held down by a partial buyers’ strike against these sky-high prices:

In food and beverage stores, supply is almost back to pre-pandemic levels, at 0.78 months, which is good:

At building material and garden supply retailerssupply is now back at the upper end of the normal pre-pandemic range, at 1.87 months, the same as in April and May 2019:

In clothing and accessories stores, inventory has been improving from last year’s desperate levels. The current 2.12-month supply is about 13% lower than it had been during the same period in 2019:

In general merchandise stores, which make up about 12% of total retail inventory and include Walmart and Target, inventories have risen sharply as their merchandise finally arrived. Meanwhile, consumers have shifted their spending to services such as travel, dentists, and entertainment events, and to items that those stores suddenly ran out of stock, so there are now high levels of supply, but some of it is the wrong material. , with scarcity in the right thing. The 1.58-month supply was the highest since 2007:

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