Your Black Friday bargain is most likely spring’s leftover sweatpants.
Retailers in the US have too much stock of everything from toys to women’s casual tops. While the markdowns are welcome by many cash-strapped shoppers, the holiday deals underline companies’ struggle to work through bloated inventories that are pressuring their profits.
To recap: Supply-chain snarls last year left stores scrambling to fill empty shelves. Black Friday deals were stuck in the Pacific. As orders slowly made their way from Asia in the early part of this year, consumers began to rein in spending amid soaring inflation, only buying things they needed (food, for example) and giving up splurges and impulse purchases. Suddenly, a dearth of exercise bikes and kitchen appliances turned into a glut that needed to be heavily discounted.
Illustration: Mountain People
A simple analysis of the difference between sales and inventory growth shows the mountain of unsold goods in the US has shrunk since the first quarter, but it has not completely dissipated.
Macy’s Inc has managed its inventory well throughout the year, but Kohl’s Corp remains overstocked compared with last year. Target Corp’s inventory increased in the third quarter to about 50 percent above where it was during the same period three years ago. About one-third of that growth reflected new items arriving early as supply-chain knots loosened. At Walmart Inc, inventories, although significantly reduced, remain elevated compared with pre-pandemic levels.
Retailers in the business of selling non-essentials are especially ripe for dramatic discounting this holiday season. Analysts at UBS Group AG said Target was being particularly aggressive in promoting home furnishings, electronics and toys.
UBS CEO Brian Cornell said during last week’s earnings update that the firm “faced an unexpected gross margin rate headwind from a higher-than-expected mix of promotional sales, as guests moved away from full-price purchases.”
This weekend is likely to feature record online discounts for many categories, including electronics and toys, Adobe Analytics said.
SW Retail Advisors analyst Stacey Widlitz said the majority of the 60 chains she tracks across the US and Europe are more promotional than last year. Deals back then were mostly down from or similar to 2020, when they had already been reined in. This year, markdowns are likely to be back to 2019 levels, she said.
Given the extent of excess inventory, combined with the shift away from pandemic purchases, the deals on offer this week are likely to comprise current season stock as well as items that have been hanging around since the spring. For instance, shoppers can find apparel basics at Target for as low as US$3, or an air fryer convection oven for 70 percent off on Amazon, or a kids’ tablet reduced 46 percent at Walmart.
As Americans focus their spending on groceries and other essentials, they need such bargains to consider buying a set of scented candles or new yoga pants.
The picture in Europe is more complex. Black Friday has become a fixture across the Atlantic over the past decade, but it is probably the biggest act of self-harm in the history of retail, as all it does for most chains is pull forward sales that would have happened later at higher prices. Money through the checkout might increase, but profits are sacrificed.
PricewaterhouseCoopers expects UK consumers to spend ￡7.5 billion (US$9.06 billion) this Black Friday, ￡500 million more than last year. Even as Britons face escalating energy costs, food inflation and rising mortgage rates, demand is so far holding up, but for European shoppers, who are also being squeezed by higher energy prices, the Ukraine war is weighing on confidence.
While many discounts appear to have been planned — for example, at electronics retailers Currys PLC and AO World PLC, which can work with their suppliers months in advance to offer eye-catching deals — others look more knee-jerk. For example, Marks & Spencer Group PLC, traditionally a bellwether for the British retail sector, is offering 20 percent off of all coats, jackets and boots.
Europe’s fairly warm autumn so far might be good for consumers’ heating bills, but it is less helpful for sales of outerwear.
On both asides of the Atlantic, there is a standoff between stores and shoppers. Consumers’ budgets are under pressure, and they know that retailers have too much stock. While last month’s retail sales were resilient — no doubt helped by early Black Friday discounts at the start of the month — companies including Target, Macy’s and Kohls saw a slowdown in spending later last month and into this month.
Against this backdrop, retailers must hold their nerve, sticking as much as possible to planned promotions rather than offering deeper discounts to stimulate sales or offload unwanted stock. After all, this is the first holiday season in three years that economies are fully open, bolstering gift and food buying.
Whether companies or consumers blink first could determine if this crucial trading period turns out to be a sequel to last year’s revenge spending — or spring’s big-box bloodbath.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry, and was previously a reporter for the Financial Times. Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry, and was previously a business reporter at NBC News.
This column does not necessarily reflect the opinion of
the editorial board or Bloomberg LP and its owners.
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