American retailers could be saddled with a glut of inventory for the holiday shopping season.
With that in mind, chains could see their profit margins threatened at this crucial moment, with many stores offering high discounts, Reuters reported Monday (Nov. 13).
The report cited an analysis by financial news/data platform LSEG Workspace of 30 major American retailers showing that two-thirds of the 30 retailers, including Foot Locker and Ulta, marked inventory turnover below their peers, a sign of either slow sales or excess stock.
According to Reuters, this inventory overstock is particularly challenging this year, as consumers are projected to spend just 3% to 4% more this season, more or less on par with inflation and the slowest rate of growth in five years.
“I am relatively pessimistic about the holiday season,” said Gerald Storch, retail consultant and former Target vice chairman and ex-CEO of Hudson’s Bay. “It’s possible that some retailers could be overly optimistic and make that mistake of buying too much yet again.”
And Jeff Bornino, North America president at TMX Transform, and a former Kroger supply chain executive, told Reuters that excess inventory is an issue for many retailers as it drives up costs for handling, storing and shipping merchandise.
“The undeniable reality in retail is that 15-20% of products occupying store shelves need to go,” Bornino said.
Whether or not those sales will happen during the holidays remains to be seen. The 3% to 4% figures the Reuters report shared comes from a forecast issued earlier this month by the National Retail Federation.
In an earlier projection, Mastercard said it expects a “rebalancing” in consumer spending for the upcoming holiday season, with its SpendingPulse showing retail sales increasing 3.7% for the period between Nov. 1 and Dec. 24.
“While the consumer of holidays past may have been a consumer trying to find footing in a rapidly shifting economy, the consumer of holidays present has taken their power back,” Michelle Meyer, U.S. chief economist, Mastercard Economics Institute, said at the time. “We expect these individuals to impressively navigate the holiday season, making choices and trade-offs that best suit their lifestyles.”
Meanwhile, installment programs — like buy now, pay later (BNPL), plans offered as part of general-purpose credit cards, and ones offered by store-branded cards — will play a heightened role in the consumer toolkit during the holidays, according to recent PYMNTS Intelligence.
“Forty-one percent of shoppers expect to leverage installment plans more heavily than usual for holiday purchases, with younger consumers substantially more likely to do so,” PYMNTS wrote in the “Holiday Shopping 2023 Report.”
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