US retailers face tough transition as suppliers forced to cut purchases

US retailers are in an unprecedented inventory crisis. Last year's holiday season forecast errors caused a large amount of overstocked inventory. This peak season, a large number of promotional activities and supply chain delays, consumer demand is also full of unpredictability. It may take a long time for the inventory crisis to completely end.

Wells Fargo analysts pointed out that forecasting errors have become a common phenomenon during the COVID-19 pandemic. Retailers cut prices on everything at the beginning of the pandemic because they all believed that consumers would cut back on spending, but government incentives left consumers with no goods to buy.

When it comes to how retailers plan holiday inventory this year, analysts say the U.S. retail industry is once again entering a holiday season filled with uncertainty. A safe bet is that consumers will not have the same momentum as last holiday season.

Excess inventory cannot be sold, and US retailers are struggling to make the transition

Wells Fargo expects promotional activity to increase throughout the summer as retailers clear out excess inventory.

However, in addition to high inflation affecting consumer confidence, American consumers are now less interested in shopping and are focusing on travel, entertainment and other services. The mismatch between supply and demand, as well as sales and inventory levels, is far beyond the expectations of retailers.

Analysts note that lower new inventory orders in the second half of the year could help the overall industry health while easing some supply chain concerns. However, imports in April were still near record highs, according to tracking by the National Retail Federation and Hackett Associates.

Now, the big question is whether retailers will be able to sell all the goods that come in today. As freight, fuel and labor costs rise for retailers, those doing purchasing and inventory planning are under tremendous pressure in a market that continues to be unpredictable.

If retailers can flush out some of the bad merchandise, they will make room for the holiday season's big purchases, analysts said. But excess inventory is taking up limited space, which is why importers are facing delays or cancellations.

Suppliers are forced to cut purchases, but this will be delayed to the inventory side

Julien Mininburg, chief executive of Helen of Troy, a supplier whose top three customers are Amazon, Walmart and Target, said the company is reducing its purchase orders in response to inventory reductions by its major retail customers.

The supplier of brands such as Vicks and Hydro Flask now expects its annual net sales to fall from the previous year as its main customers have scaled back purchase orders to adjust to consumers with weaker inflation.

Julien Mininburg noted that Target, which accounted for about 11% of Helen of Troy's net sales revenue in fiscal 2022, has also been cutting new orders this year.

However, even with the cuts, Helen of Troy's inventory size won't shrink overnight. According to its 10-K filing, 88% of its finished goods purchases in fiscal 2022 came from the Asian continent, with lead times of up to nine months for some products.

The sharp drop in demand and supply chain delays mean the company's inventory levels are likely to climb in the second quarter before starting to decline in the second half of the fiscal year. But the company still plans to keep enough buffer inventory for items that are harder to source.

Editor✎ Ashley/

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