There is still chaos in the supply chain for retailers, but different retailers face different types of chaos.
Written by Wolf Richter for WOLF STREET.
There are now stories about retailers suddenly being “overstocked,” shortages turning into a glut, and suddenly people actually seeing supply chains miraculously repaired or something. But overall stocks in retailers are still very low, and in the largest category of retailers – auto dealers – stocks are very low, and they are low in other categories of retailers, but general merchandise retailers, such as Walmart and Target, are suddenly overwhelmed by some types of the goods.
What happened in general retailers of merchandise, and others, was that forever long lead times and hurdles and chaos delayed merchandise, and when they finally got there, consumers moved on to other things. These retailers have run out of things that consumers have moved to, and are crammed with things that consumers are no longer interested in.
Total retailer inventories, in terms of supply in months, remain near historic lows.
Having the wrong inventory on hand is a classic problem for the retailer. To reduce this risk, retailers have shortened their supply chains and delayed key product decisions until the last minute. Then the pandemic hit, and that solution became a huge problem, and retailers had to adapt quickly. Some categories of retailers have been caught wrongly positioned and overstocked, while many other categories of retailers have either severely out of stock or short of stock, including the largest category of retailers – auto dealers – which are still out of stock. The overall ratio of inventory sales – or month supply – at retailers improved only slightly to 1.18 months supply:
Dollar inventories = massive cost inflation, not rising inventories.
Inflation in goods – what retailers sell – was well above the overall CPI. For example, wholesale prices for used cars, which become the cost of inventory for dealers, rose 35% to 45% year over year between October of last year and February of this year. These cost increases have inflated dollar inventories, although used-car inventories in terms of vehicles have remained tight and have actually declined over the past three months.
What matters: the supply of months.
To rule out the effect of rising costs of goods, and to get a sense of actual inventory levels in relation to sales, we look at the “Sales and Inventory Ratio,” a traditional industry measure of how many months it takes to sell inventory available 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 the fiscal first quarter ends for most retailers including Walmart and Target.
We’ll look at them by retailer category, as they are big differences.
Car dealers, the largest category of retailers, have Which in normal times accounts for more than 35% of total retail stocks, stocks remain very low, at 1.28 months, down from roughly 2.2 to 2.4 months before the pandemic. And they hardly made any progress at all:
Car dealers now have another problem: Pickups and big SUVs were the rage in 2020-2021 and before that in 2022, and no one had any in stock due to a semiconductor shortage. Automakers have prioritized the production of these vehicles because they are much more expensive and more profitable than smaller vehicles, and if they could build only a limited number of vehicles due to the lack of semiconductors, they would build the most expensive and most profitable ones to maximize them. Revenue and profits – which they did.
Then gasoline prices started to rise earlier this year and suddenly consumers were chasing more economy cars, compact SUVs and hybrids, now dealers have stopped them, almost all of them are gone from stock, pickup trucks are starting to pile up in some brands . But overall new car stocks are still very low.
The number of new vehicles in the dealer yardAccording to Cox Automotive data, it was down 70% from 2019 to just 1.13 million vehicles at the end of May. Many models, especially today’s most economical cars, have disappeared from stock.
The number of used vehicles at many dealerships, At 2.47 million vehicles narrow and below pre-pandemic levels, but there is enough supply for the currently low sales rates, which are maintained by partial buyers’ strike against these very high prices:
in food and beverage stores, Supply is almost back to pre-pandemic levels, at 0.78 months, which is good:
In building materials and garden supplies retailerssupply is now back to the maximum of its pre-pandemic normal range, at 1.87 months, as in April and May 2019:
in clothing and accessory stores, The stock has improved from desperate levels last year. The current supply of 2.12 months is about 13% lower than it was during the same period in 2019:
In general merchandise stores, which accounts for about 12% of total retail inventory and includes Walmart and Target, stocks rose sharply, as their merchandise finally arrived. Meanwhile, consumers shifted their spending to services like travel, dentists, and entertainment, and to items that those stores suddenly ran out of, so there are now rich levels of supply, but some of it is the wrong stuff, with a shortage of the right kinds. The 1.58-month supply was the highest since 2007:
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