(NewsGlobal.com)- According to a new report by Telsey Advisory Group, a glut of inventory at major retailers is encouraging markdowns. It began when consumers began cutting back on discretionary spending and moving away from discretionary categories.
Consumers in the United States have struggled to keep up with rising prices for everyday items like food, household goods, and even gasoline. Even if it moderates, economists predict that inflation will remain high until 2023, leaving many Americans burdened by price increases that have outpaced wage increases.
According to Telsey, the good news is that businesses are starting to offer promotions to combat excess inventory. Companies chased as much merchandise as possible to keep up with demand, which has now slowed. Eventually, markdowns and promotions will increase.
Telsey cited that during Target’s first-quarter earnings call earlier this month, the Chief Growth Officer, Christina Hennington, said that the company was facing challenges as sales were lower than expected in several categories, resulting in excess inventory in those areas. Hennington told analysts that the problem was that the mix of actual demand materialized differently than they had anticipated. Consumer demand shifted away from bigger, bulkier products like furniture, TVs, and more.
Meanwhile, Walmart, its biggest competitor, and the country’s largest retailer, are having similar problems.
Walmart U.S. CEO Doug McMillon said they knew they were up against stimulus dollars from last year, but the inflation rate in food pulled more dollars away from general merchandise than we expected.
He said that most excess inventory would be worked through over the next few quarters. Indeed, during the first three months of the year, Walmart began being aggressive with rollbacks in apparel.
“Even if prices are reduced, the apparel margin can still benefit our overall mix,” McMillon said.
Macy’s Chief Financial Officer Adrian Mitchell said the same. The company is focusing on markdowns for the second fiscal quarter to clear some excess inventory in those decelerating categories.
“Given the high inventory levels we see in the industry,” Mitchell added, “there’s the possibility of an elevated promotional environment.”
In laymen’s terms, that means sales.