Jun 7, 2022 - Economy

Retailers have too much stuff

Average number of Q1 inventory days at Target
The average number of days a company's inventory lasts before it is sold; Data: Sentieo; Chart: Axios Visuals

Stockpiling products over the past year has led to a glut of stuff that retailers are desperate to get rid of.

Why it matters: Retailers have limited physical space to store and to sell products. When they misjudge what people want to buy or when goods will arrive, they have to pay more to accommodate that excess.

  • That translates into higher costs and deeper discounts that eat into profits.

Driving the news: Target today said its operating margins would be smaller than expected this current quarter as it takes several measures to clear out inventory, such as canceling orders and marking down prices.

  • The retailer's first quarter inventories were at their highest levels for the period in at least a decade, according to an analysis by Sentieo.

The big picture: Target and some of its peers — Walmart, Costco, Macy’s — have been struggling to estimate what, when an how much people want as the economy swung rapidly from lockdowns and massive unemployment to a huge recovery fueled by fiscal stimulus.

  • “People are shifting their shopping habits [and] are buying different things right now. That requires a lot of planning [and] a lot of adjustment to strategy,” Arun Sundaram, senior equity research analyst at CFRA, tells Axios.

Be smart: Supply chain snarls have played a major role in reshaping inventory planning.

  • Instead of a "just in time" supply chain, retailers over the pandemic moved to a "just in case" mindset to ensure shelves were stocked and to get ahead of future disruptions.

What to watch: If retailers pivot back.

The bottom line: Inventory level issues that we've seen with COVID winners like Peloton and Clorox are now showing up across the broader retailer landscape, Nick Mazing, director of research at Sentieo, tells Axios.

  • "Everybody stocked up on wipes during COVID and now there is an overcorrection," he quips.
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