Overstocked inventories and fears of a recession on the horizon will push retailers to offload products at potentially steep discounts ahead of the holiday shopping season, according to experts.
Retail giants the likes of Walmart, Best Buy and Target have said in recent months that they’re sitting on excess inventories heading into fall.
Walmart, for example, said in August that it had to take steep price cuts on apparel to try to reduce more than US$61-billion worth of inventory at the end of the first quarter.
The messaging is a major departure from this time last year, when many retailers were warning that supply chain issues would lead to higher prices, major delays or products missing from store shelves.
Retail analyst and author Bruce Winder tells Global News that “inventory is one of the big issues right now in retail, almost across the board.”
“A lot of retailers are heavy right now with a lot more inventory than last year and than normal,” he says.
Winder points to the uncertainty in supply chains as driving much of the glut. Many businesses had to order early to ensure they had product on time, and to get out ahead of inflationary pressures driving up purchase prices.
Now, as supply chain issues are showing signs of improvement, some retailers have been “caught with a bit too much on order,” Winder says.
Overstocked inventories could be a long-awaited sign that normalcy is returning to supply chains after two and a half years of COVID-19 disruptions, says Pedro Antunes, chief economist at the Conference Board of Canada.
He notes that last year’s headaches were not just the result of supply chain kinks, but of immense spending demand from consumers who had been cooped up for more than a year in the pandemic with excess savings during that time.
With many travel restrictions still in place last fall, Canadians were shelling out on durable goods, but faced long waits, disappointment and high costs as demand outstripped supply, Antunes says.
“Fast-forward to today, we essentially have seen, finally, a massive ramp-up … after inventories have been drawn down through most of 2021,” he says.
“Certainly, that’s an advantage for consumers to be able to kind of actually see what’s available in stock, get quicker delivery, perhaps, and hopefully start to see some better prices as well, because we did see a lot of inflation in some of those goods.”
Winder agrees that Canadians are set to see more discounts this year compared to last. He says in 2021, consumers weren’t shopping around as much — if they could get it from one store, they were going to make the purchase.
But this year, retailers are going to be “very aggressive and very early” as they try to compete for consumer spending, he says.
Winder points to Amazon’s Prime Early Access Sale on Tuesday and Wednesday of this week as a direct attempt to get ahead of other retailers’ holiday campaigns.
At the same time, Walmart is holding a “Rollbacks and More” sale event Oct. 10-13 to counter Amazon’s discount days, with deals on everything from Hot Wheels toys to luggage.
Kohl’s and Best Buy’s 48-hour sale also runs on the same days as Amazon’s event, while Target’s “Deal Days” ran Oct. 6-8, avoiding a clash with Amazon.
Adobe Analytics forecast online sales in November and December to rise 2.5 per cent to US$209.7 billion, compared with an 8.6 per cent increase a year ago, as more people also return to in-store shopping and bring forward purchases to as early as October.
Adobe expects discounts for electronics to be around 27 per cent, compared to eight per cent a year ago.
“It’s kind of a good time to be a consumer. You’re going to get better deals than normal,” Winder says.
Recession fears make holiday season critical for retailers
Canadians are going to be in the market for deals, in part, because high inflation is constraining household buying power, Winder adds.
Rumblings of a recession on the horizon are also likely to see Canadians hold onto their money a bit tighter and tamp down spending on discretionary items, he argues.
Antunes agrees, citing Conference Board projections for “very soft” consumer spending through the first half of 2023.
Interest rate-sensitive sectors such as housing are especially vulnerable as the Bank of Canada raises its policy rate to tackle inflation, he says, which might put retailers of home furnishings in a difficult position should their inventories be overstocked on these goods.
Retailers such as Dollarama, Walmart and Costco could do well with discount offerings and consumable staples, Winder says, as will brands such as Canadian Tire — stores that enable consumers to do their own maintenance on homes or keep their old cars running when big-ticket expenses are off the table.
He says that other retailers will be even more incentivized to compete in the remaining months of the year as they brace for a lean 2023.
“This fourth quarter is going to be important for retailers to generate as much cash as they can because they’re going to be challenged from a top line standpoint next year through the recession,” Winder says.
“People are just going to be really careful about spending. It’s going to be a very, very tight year.”
— with files from Reuters
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