Inventory Woes Are a Boon for This Sliver of the Retail Industry

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A recent report performed by First Insight indicates a dramatic de-prioritization of spending on home decor, following a swell of spending on it during the pandemic, with 31% of consumers saying they intend to spend less on clothing while prices are uncomfortably high. First Insight's findings also indicate 42% of consumers are now specifically looking for deals, including shopping clearance merchandise.

The industry has a mechanism for getting rid of goods that can't be sold at the right price their first go-around.

With nothing more than a quick glance at the industry's headlines, it would be easy to conclude that most retailers are in a bit of trouble. Target warned shareholders within last month's report of first-quarter results that "additional markdowns, removing excess inventory and canceling orders" would pare second-quarter profit margin rates down to around 2%.

Walmart's assessment of its first-quarter inventory levels was a bit more optimistic, but only a bit. CEO Doug McMillion explained during May's quarterly conference call, "We like the fact that our inventory is up," but added, "a 32% increase is higher than we want. We'll work through most or all of the excess inventory over the next couple of quarters."

Translation: Look for markdowns to chip away at Walmart's margins as well.

It's not just the two biggest general merchandise retailers dealing with the problem, though. Data from FactSet indicates that U.S. wholesalers' and retailers' inventory levels have collectively soared deep into record territories this year, with store chains buying too aggressively coming out of the pandemic in an effort to be ready for consumerism's recovery. Target's and Walmart's discounting is being mirrored by most of its rivals.


retail  inventory