It’s still supply-chain chaos for retailers, but different retailers face different kinds of chaos.
For Wolf Street by Wolf Richter.
There are stories now about retailers suddenly “overstocking”, and shortages turning into glutes, and suddenly people are already noticing that the supply chain is miraculously fixed or whatever. But overall merchandise at retailers remains very low, and the largest category of retailers – auto dealers – inventory is extremely low, and they are few in other retailer categories but general merchandise retailers, such as Walmart and Target. Some types of goods have suddenly sunk.
What happened to these general merchandise retailers, and a few others, is that forever long running times and hassles and chaos delayed goods, and when they finally got there, consumers moved on to other things. Had gone. And these retailers ran out of goods that consumers had moved on, and overpriced goods that consumers were no longer interested in.
Overall retailer inventories still close to historic lows in terms of months’ supply,
Having the wrong inventory on hand is a classic retailer problem. To mitigate that risk, retailers shorten their supply chains and delay major product decisions until the last minute. And then the pandemic hit, and that solution became a huge problem, and retailers had to adjust on the fly. And some retailer categories were mishandled and overstocked, while many other retailer categories that have too tight inventory or shortages, including auto dealers — the largest category of retailer — are still out of inventory. The overall merchandise-to-sales ratio — or months’ supply — at retailers improved slightly to just 1.18 months’ supply:
Inventory in dollars = raging cost inflation, not rising inventory.
Inflation in goods – which retailers sell – is much higher than the overall CPI. For example, the wholesale price of used vehicles, which become a cost in inventory for dealers, rose 35% to 45% year-over-year between October last year and February of this year. These cost increases have increased inventory in dollars, although in terms of vehicles used vehicle inventories remain tight and have actually declined over the past three months.
What matters: Months’ supply.
To exclude the impact of rising cost of goods, and to get a feel for what actual inventory levels are in relation to sales, we look at the “inventory-sales ratio,” a classic industry metric that shows that How many months does it take to sell the inventory on hand at the end of the month at the current rate of sales.
Last week, the Census Bureau released retail inventory data through April. The end of April is also when fiscal Q1 ends for most retailers, including Walmart and Target.
We’re going to look at it by category by retailer, because those are the big differences.
Among auto dealers, the largest category of retailer, Inventory remains extremely low, which accounts for over 35% of total retail inventory in normal times, at 1.28 months’ supply, down from around 2.2 to 2.4 months’ supply before the pandemic. And they hardly made any progress:
Auto dealers are now grappling with another problem: Pickup trucks and big SUVs were all the rage in 2020 and 2021, and before that in 2022, and none had them in stock due to semiconductor shortages. Automakers preferred the production of these vehicles because they are far more expensive and profitable than smaller vehicles, and if they could only manufacture a limited number of vehicles due to semiconductor shortages, they would be the most expensive to maximize. And will build the most profitable vehicles. Revenue and profit – which they did.
Then earlier this year gasoline prices started rising, and suddenly consumers were chasing more affordable cars and compact SUVs and hybrids, and now that dealers are out of them, they’ve simply run out of inventory, while pickup trucks are piling up. On some brands. But overall the new vehicle inventory remains extremely low.
Number of new vehicles at dealer lotAccording to data from Cox Automotive, there are only 1.13 million vehicles at the end of May, down 70% from 2019. Many models, especially the now more affordable vehicles, have essentially disappeared from the list.
Number of vehicles used at the dealer lot, 2.47 million vehicles are tight and below pre-pandemic levels, but there is currently enough supply to make up for low sales rates, which are held down by partial buyers’ strike against these sky-high prices:
at food shops, Supply is almost back to pre-pandemic levels at 0.78 months, which is a good thing:
at building materials and garden supply retailersSupply is now back at the upper end of the pre-pandemic normal range, at 1.87 months as of April and May 2019:
clothing and accessories stores, Inventory is improving from disappointing levels last year. The current supply for 2.12 months is about 13% lower than it was during the same period in 2019:
at general merchandise stores, which accounts for about 12% of total retail inventory and includes Walmart and Target, have seen a rapid increase in inventory since their merchandise finally arrived. Meanwhile, consumers shifted their spending to services such as travel and dentists and entertainment events, and to items that had suddenly run out of those stores, and so now have rich levels of supply, but some of it. There are wrong things, which lack the right thing. 1.58 months supply was highest since 2007:
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