During the pandemic, when buying activity was frenzied and personal savings were substantial, the modus operandi for retailers was pretty straightforward: If you have it in stock, customers will purchase it — whether in store or online. Product shortages were a common sight throughout much of the country, due in part to supply chain bottlenecks, so stocking up wherever possible made sense.
But with the COVID-19 lockdowns lifted and life largely back to normal, retailers appear to have overestimated consumer demand, with their inventories far exceeding the once torrid pace of sales.
From big-box retailers like Target and Walmart to consumer product parent companies like Procter & Gamble and Unilever, several household-name businesses are pulling back on their purchase orders in light of how much inventory they already have that hasn’t yet sold. Helen of Troy, whose brands include Vicks, Braun, Honeywell and Drybar, intends to focus its efforts on reducing what inventory exists through discounts while adjusting earnings expectations.
Julien Mininburg, who serves as the CEO of Helen of Troy noted on a recent earnings call that market realities will force the company to re-examine its outlook for 2022, and perhaps beyond.
“Now that we ourselves are reducing [inventory] and they’re reducing theirs, it’ll lead for an opportunity to re-normalize for both and it’ll be for the benefit of all over time,” Mininburg noted, referring to several of Helen of Troy’s largest buyers, like Walmart, Amazon and Target. “It’s just painful on the path from here to there.”
Inflation eating into household budgets
The uptick in inventory is largely due to the surge in prices charged by businesses in just about every industry. With inflation raging now at more than 9%, according to the Consumer Price Index estimate from the Labor Department for June, retailers are charging more to offset the higher costs they’ve incurred. This has led to many Americans pulling back on some of their discretionary purchases, opting to buy more for their needs rather than wants.
Although the pullback has been slow, it’s starting to be borne out in the data. In June, for example, retail sales nationwide rose from May but slowed considerably compared to previous months, up just 0.6%, according to the National Retail Federation’s estimates. Unadjusted on a year-over-year basis, sales rose 5.8% on a three-month moving average. That’s down from 7% year over year through the first half of 2022.
Sales have also tempered for big box giants like Target and Walmart. In response, their respective inventories have swelled. In a press release, the Target Corporation announced its plan to focus on “inventory optimization,” including markdowns, canceling orders and eliminating excess inventory by various means.
Walmart, meanwhile, is working through inventory issues of its own. Speaking to Fortune, Walmart COO John Furner said that around a fifth of the 32% spike in the company’s inventories stems from poor inventory management — and it will take time for conditions to normalize.
“It’s probably another couple quarters until we manage the inventory down to where we want it,” Furner said during Walmart’s annual employee meeting held in Fayetteville, Arkansas, where the company is headquartered.
One way the organization intends to winnow its inventory is by minimizing price increases as much as possible, particularly on household staples like canned tuna and boxed pasta.