For the second straight holiday shopping season, major U.S. retailers from Dollar General to Walmart may have too much stock on hand, according to a Reuters analysis. The excess stock can cut into retailers’ profit margins and create steep discounts for consumers.
Retailers are apprehensive about overstocked backrooms because of this year’s predicted sluggish holiday spending, reported Reuters. The National Retail Federation (NRF) predicted that while holiday spending this year will reach record levels again, the spending growth rate is lower than in years past at a 3%-4% increase.
According to industry estimates, it will be the slowest growth pace in five years.
"I am relatively pessimistic about the holiday season," Gerald Storch, retail consultant, former Target vice chairman and ex-CEO of Hudson's Bay, told Reuters. "It's possible that some retailers could be overly optimistic and make that mistake of buying too much yet again."
Jeff Bornino, North America president at TMX Transform and former supply chain executive at Kroger, said that carrying too much inventory drives up retailers’ expenses for handling, storing and transporting products.
Target has previously announced that it is taking a more cautious approach when it comes to inventory this holiday season following seven consecutive quarters of declining sales in discretionary items like apparel and toys. Target CEO Brian Cornell also stated that units sold in food and beverage categories have been declining.
Some retailers are already offering major discounts to clear excess inventory before Black Friday, Telsey Advisory Group analyst Joseph Feldman said.
“As shoppers turn cautious due to financial strains such as high interest rates and a resumption of student loan repayments, some retailers are offering holiday discounts earlier than usual,” Brian Mulberry, client portfolio manager at Zacks Investment Management, told Reuters.
"And that is simply driven by the fear that the consumer, by the end of the year, could be in a weaker state," Mulberry added.
Knowing what to have on hand and when is key to maintain profit margins and customer loyalty. Check out NACS’ two category management certification courses: Certified Convenience Category Manager Course (CCCM) and Certified Convenience Advanced Category Manager certification (CCACM).