NEW YORK: Excess inventories have forced retailers in the United States to cut prices to lure customers this holiday shopping season, but economic headwinds could prevent some shoppers from taking advantage.
Analysts said rising interest rates and recession fears cooled consumer demand earlier this year, fuelling an increase in inventories for retailers.
“Last year, there wasn’t enough inventory and so retailers in particular, they stockpiled inventory so that they didn’t run into shortages,” said Transportation Insight Holding Company chief strategy officer John Haber.
“As they were stockpiling inventory, the economy started declining very rapidly.”
Many brands, including Nike, are offering big discounts over the holiday period to clear warehouse space.
They are hoping that strong sales will bring some festive cheer, despite the discounts eating into their bottom lines.
HURTING PROFITABILITY
At holiday decoration distributor Kurt S. Adler, around 90 per cent of goods sold come from China. Supply chain issues last year created significant challenges, said the family-run firm.
The company’s co-president Clifford Adler said: “They just didn’t have enough people working at the ports, it was very difficult getting truckers. So that all contributed, and then you had the zero tolerance in China of COVID.”
A year on, some supply chain issues have abated. Prices for shipping containers have fallen by about two-thirds compared to a year ago, said the company.
But fears over lockdowns in China persist and costs still remain around twice as high as 2020.
Mr Adler said: “It has created a situation where we have a lot more inventory than we normally would have at the end of the year because of the trouble getting it in, in a timely fashion.”
Carrying excess inventory ties up the working capital of businesses, and the deterioration of stock over time can hurt their profitability, said observers.
Some of the biggest brands are already feeling the pinch.
In its latest quarterly earnings report, Nike announced its North American inventories increased 65 per cent compared to a year ago.
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