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 * Reading Now Off-price retailers shift tactics as inventory gluts squeeze the
   industry By: Sarah Zimmerman
 * Reading Now Retailers take expensive measures to clear inventory ahead of
   peak season By: Kate Magill
 * Reading Now Inventory management’s role in the transformation of
   manufacturing By: Eide Bailly
 * Reading Now Best Buy bucks the glut trend, boasting healthy inventory By:
   Kate Magill
 * Reading Now Retail inventory in 2022: Normal is still nowhere in sight By:
   Ben Unglesbee
 * Reading Now How grocers are managing the twin pressures of supply chain
   disruption and inflation By: Jeff Wells
 * Reading Now Car parts supplier loads up on inventory as just-in-time delivery
   loses appeal By: Maura Webber Sadovi
 * Reading Now Just-in-time and safety stock require a careful balance By: Matt
   Leonard



Trendline


INVENTORY MANAGEMENT


Workers fill inventory among shelves lined with goods at an Amazon warehouse on
September 4, 2014 in Brieselang, Germany. Warehouses have seen shifts in
consumer demand affect product assortment in various industries. Sean Gallup via
Getty Images

NOTE FROM THE EDITOR

As economic conditions change, so do inventory management strategies. Few
industries showcase this better than the retail industry.

At first, the debate was whether companies should stock up just-in-case, or
just-in-time. Many chose the former. But more recently, a demand downturn has
led many sellers to regret that decision. High inventory levels are now
affecting their balance sheets at a time of economic uncertainty.

In this trendline, we’ll take a trip back in time exploring how retailers in the
grocery, fashion and automotive sectors have navigated inventory management
trends. I hope you find it insightful.

Edwin Lopez Managing Editor
 * Reading Now Off-price retailers shift tactics as inventory gluts squeeze the
   industry By: Sarah Zimmerman
   
 * Reading Now Retailers take expensive measures to clear inventory ahead of
   peak season By: Kate Magill
   
 * Sponsored Inventory management’s role in the transformation of manufacturing
   Sponsored content by Eide Bailly
   
 * Reading Now Best Buy bucks the glut trend, boasting healthy inventory By:
   Kate Magill
   
 * Reading Now Retail inventory in 2022: Normal is still nowhere in sight By:
   Ben Unglesbee
   
 * Reading Now How grocers are managing the twin pressures of supply chain
   disruption and inflation By: Jeff Wells
   
 * Reading Now Car parts supplier loads up on inventory as just-in-time delivery
   loses appeal By: Maura Webber Sadovi
   
 * Reading Now Just-in-time and safety stock require a careful balance By: Matt
   Leonard
   




OFF-PRICE RETAILERS SHIFT TACTICS AS INVENTORY GLUTS SQUEEZE THE INDUSTRY

Markdowns by large retailers have created a domino effect, placing new pressures
on the model of stores like Burlington and Ross.

By: Sarah Zimmerman • Published Sept. 13, 2022

As businesses aggressively pursue markdowns to clear excess inventory, off-price
retailers are now finding themselves in direct competition with brand name
stores.

Burlington Stores, Ross and Nordstrom Rack are among those that have experienced
declining demand as consumers seek discounts at big-name box stores such as
Target and Walmart. To keep up, off-price stores are now slashing prices even
further and trying to improve their product assortment.

“The promotional environment has gotten so aggressive in such a short period of
time that we need to make the move on [marking down] the goods,” said Ross CEO
Barbara Rentler on a Q2 earnings call. “Otherwise, we’re not offering the
customer the value that she wants and needs.”

It’s a sharp reversal from the optimism executives expressed just months ago.
Many had expected that inflationary pressures and a glut of inventory would have
given off-price retailers expanded buying options at lower prices, allowing them
to gain more in markups.

Burlington had predicted “the opening of supply” from industry-wide glut would
allow it to secure higher markups in the latter half of the year, though CEO
Michael O’Sullivan walked back that expectation on a Q2 earnings call. The
retailer is now focused on keeping inventory levels balanced and improving its
assortment of products while keeping costs down.

“We need to challenge every hanger in our assortment and make sure we are
offering the best value,” said O’Sullivan. “During this time, we will tightly
control buying and liquidity, carefully managed inventories and aggressively
pursue opportunities to drive down expenses.”

Retailers grappling with an overwhelming amount of inventory are choosing to
hold on to inventory rather than hand it off to the off-price market. Some are
deploying big discounts, while others including Gap are choosing to store
products to sell later when demand improves.

“Rather than head to off-price at the point where they normally would, retailers
might hang on to the merchandise a little longer or try to sell it at their own
stores at a markdown,” said Marshall Fisher, professor of operations,
information and decisions at the Wharton School of the University of
Pennsylvania. “Branded retailers are becoming a stronger competitor to off-price
because their excess inventory means they’re offering a greater range product.”

For branded retailers, the calculus is simple. With financial losses mounting
from supply chain delays and lower consumer demand, companies hope aggressive
discounts can help rightsize their stock levels.

Burlington’s CEO noted retailers are extending discounts to more premium items,
pressuring off-price stores to compete on price and quality. “The current level
of promotional activity will not last forever,” O’Sullivan told analysts last
month. “But while it does, it will create a very significant headwind for us.”

To keep up, some off-price retailers are focused on clearing their own inventory
levels to improve product assortment.

“We are clearing through lower price point items at Nordstrom Rack, to make room
for the premium brands at great prices that drive the Rack business,” Nordstrom
President and Chief Brand Officer Pete Nordstrom said on a Q2 earnings call.

Despite the headwinds, some believe that industry-wide glut still presents
off-price a major opportunity for growth. Brett Rose, CEO of wholesale
distributor United National Consumer Suppliers, said that even though less
retailers are selling to off-price, there are still plenty of products
available.

“You’re not seeing a ton of retailers selling off excess goods to off-price
retailers,” said Rose. “You’re seeing a lot of suppliers being canceled by
retailers, who are then selling it off the off-price retailers for a significant
discount. So it’s almost a better deal.”

Many off-price retailers buy products at lower prices to hold on and sell later,
for example buying winter jackets in the summer. The key, Rose said, is staying
in touch with what the consumer wants to effectively plan for demand.

The TJX Companies, which owns TJ Maxx and Marshalls, reported strong
profitability in the past quarter despite a decline in U.S. sales, with
President and CEO Ernie Herrman saying on the company’s Q2 call that there are
“plenty of open-to-buy to take advantage of the current environment.”

“Our teams executed our off-price fundamentals extremely well, and our merchants
did an excellent job buying the right merchandise in the right categories,” he
said.

Article top image credit: Daphne Howland/Supply Chain Dive



RETAILERS TAKE EXPENSIVE MEASURES TO CLEAR INVENTORY AHEAD OF PEAK SEASON

Faced with sluggish consumer demand, Gap, Kohl’s and Nordstrom are deploying
deep discounts and pulling items from the shelves.

By: Kate Magill • Published Aug. 30, 2022

With consumer demand cooling, retailers have shifted from scrambling to secure
supply to aggressively clearing excess inventory.

Rising inflation has tempered spending and pushed many businesses to deploy
steep markdowns and other measures to move unsold products. The Census Bureau
reported that July retail sales remained flat compared to June, with the
National Retail Federation noting clothing and clothing accessory store sales
were down 0.6% month-over-month.

“I think a lot of companies said, ‘Oh there’s a buying spree,’ and forgot the
spree part,” said Erika Marsillac, professor of supply chain management at Old
Dominion University. “A spree ends, this is not something that continues
forever.”

Slowed spending came just as many companies were receiving orders placed months
ago when demand was higher. As a result, retailers are now overwhelmed with a
“sonic boom of inventory,” Urban Outfitters CEO Richard Hayne said on a Q2 call.

Businesses are employing a variety of tactics, including steep discounts, order
cancellations and pack and hold strategies, in an attempt to clear their shelves
of stagnant products and make room for holiday inventory.

“None of them is a perfect tool, but retailers have to resort to them for lack
of better options,” Jie Zhang, a marketing professor at University of Maryland’s
Robert H. Smith School of Business, said in an email.

--------------------------------------------------------------------------------

“I hesitate to call it a blood bath, but it’s going to be ugly in terms of the
amount of discounting and markdowns”



Richard Hayne

CEO of Urban Outfitters

--------------------------------------------------------------------------------

After suffering slow sales beginning in late June, Nordstrom is among retailers
now prioritizing product markdowns and inventory clearance to make room for new
products, Nordstrom President and Chief Brand Officer Pete Nordstrom said on the
company’s Aug. 23 Q2 earnings call.

Urban Outfitters, which owns brands including Free People and Anthropologie, is
also striving to reduce inventory through the second half of the year with
increased markdowns and order cancellations.

When it comes to markdowns for the retailer’s lower-tier brands, such as Urban
Outfitters, Hayne was pragmatic. “I hesitate to call it a blood bath, but it’s
going to be ugly in terms of the amount of discounting and markdowns,” the CEO
said on the call.

Markdowns and order cancellations, while effective in clearing excess stock, are
“very hurtful” to retailers’ bottom lines, Zhang said. That is proving true for
Nordstrom – the retailer estimates it will lose $200 million in gross profits in
the second half of the year due to markdowns and clearance efforts.

Promotion-heavy environments also risk making discounts the norm for shoppers,
hurting retailers’ further, Marsillac noted.

“As [discounts] become more frequent, they then become almost expected,”
Marsillac said. “But first of all you have to get that markdown in front of
people for the right things. If someone is not in the store, is not looking
online, they’re not going to see those markdowns.”

Some retailers like The Gap and Kohl’s are pulling less seasonal items from the
shelves to attempt to sell them at a later date when demand improves. Kohl’s is
saving its fleecewear to sell during the holidays, CFO Jill Timm said on the
company’s Q2 earnings call, while Gap is holding on to basics like T-shirts and
shorts.

“We’re confident that we will be able to integrate our pack and hold inventory
with future assortments as the majority of goods are carefully selected seasonal
core items we routinely use to round out our assortments,” CFO Katrina O’Connell
said during the company’s Aug. 25 Q2 earnings call.

No matter what, clearing out inventory won’t be cheap, as even pack-and-hold
strategies require higher costs for storage. It’s also still unclear if
retailers will be successful in their efforts to stabalize inventory levels,
especially if inflation remains high and consumers continue to slow their
spending.

“If in fact that is what most other consumers are going to do, then companies
are going to have a whole bunch of inventory left over,” Marsillac said.

Article top image credit: Stephen Maturen / Stringer via Getty Images
Sponsored


INVENTORY MANAGEMENT’S ROLE IN THE TRANSFORMATION OF MANUFACTURING


Sponsored content
By Eide Bailly
By: Parker Coffman • Published March 16, 2023

Recent Gartner research shows that 80% of CEOs are increasing digital technology
investments to address current economic challenges. For manufacturers, digital
technologies are essential to future growth opportunities. Modern manufacturing
companies are utilizing technology to improve processes, increase efficiencies,
and adapt quickly to today’s dynamic environment. They’re considering solutions
that simplify and automate labor-intensive processes, shrink excess costs, and
reduce risks to keep themselves competitive. 

This is especially relevant when it comes to inventory management. 

THE ROLE OF INVENTORY MANAGEMENT IN MANUFACTURING

Manufacturers can’t afford to have inaccurate data or be held back by manual
inventory processes, but years of pieced-together applications have resulted in
an infrastructure that lacks integrated capabilities and offers limited
visibility into essential business information. 

IBM recently found only 28% of manufacturing organizations are using data across
systems to improve processes. Further, only one in five companies have access to
real-time manufacturing data across the enterprise. 

A robust inventory management system enables manufacturers to flex and adapt
quickly, improving profits and the bottom line. Good inventory management
extends from point of origin all the way to the end-user and is critical to a
resilient supply chain. 

For most businesses, the supply chain is not only the primary center, but one of
the most challenging aspects to running a profitable operation. Manufacturers
struggle with how to deploy inventory in the right quantity, locations, and
time, how to react to uncertainty around demand, and how to deal with over and
under-stocking. 

And, without a comprehensive map of their supply chain, it is difficult for
manufacturers to know how they’ll be impacted when disruption occurs, let alone
proactively plan.

A robust, integrated inventory management solution can serve as a guide to
supply chain operations, enabling visibility into the source of each component
that goes into finished goods and the path those components take to the
facility. 

HOW TO CHOOSE THE RIGHT INVENTORY MANAGEMENT SOLUTION

In an ever-changing world, modern manufacturers need an agile and flexible
business management solution to keep up with innovation and globalization. This
begins with assessing your business’ current needs and potential improvement
areas.

>> A FOCUS ON PEOPLE, PROCESSES, AND TECHNOLOGY FIRST WILL ALLOW MANUFACTURERS
TO BUILD A MORE RESILIENT, LONG-TERM DIGITAL OPERATIONS STRATEGY. 

Rapid growth demands a solution that will help manufacturers scale to the next
level. Efficient and effective inventory management begins with a centralized
system for pulling data, managing inventory, connecting devices and technology,
and marrying information across departments. 

A connected business is a smart business. Here are five things to consider when
it comes to an inventory management solution: 

 1. Built for the manufacturing industry. Look for a solution that streamlines
    all essential business processes, including accounting and operations, CRM,
    sales order, production control, inventory, supply chain, and warehouse
    management. 
 2. Ease of use. Look for a system that delivers a single integrated solution
    that replaces all disconnected systems and can be accessed via any device or
    any network. 
 3. Supply chain visibility. Real-time visibility is a must for manufacturers.
    Look for a solution that provides access to actionable data from the raw
    material stages through processing, manufacturing, assembly, and end
    delivery. 
 4. Agility. The use of real-time data flow should enable your organization to
    respond and recover quickly as various circumstances arise. 
 5. Process standardization. A digital inventory management solution can enable
    standardized processes. This will equip manufacturers to easily move
    production among plants, departments or production lines, as well as engage
    simultaneous product development for quicker response time. 

Adopting a digital inventory management solution was well worth the time and
effort for manufacturing company Skin Script. Order picking and inventory
management were a constant struggle, with manual shipping and order picking
processes leading to no true inventory visibility. 

By switching to a scalable, integrated cloud system, Skin Script was able to
connect their inventory and order management system to their CRM, reorganize
inventory to optimize their warehouse, and increase efficiency. The company went
from completing a maximum of 250-300 orders a day to successfully managing over
1,000 orders a day. Skin Script tripled their sales in three years and saw
substantial growth thanks to improved production, increased efficiencies and
streamlined inventory management. 

This kind of transformation is possible with a flexible, agile business
management solution. A more efficient, automated solution will not only solve
inventory pain points but also position your company for success.

Article top image credit:

Gorodenkoff/Shutterstock.com




BEST BUY BUCKS THE GLUT TREND, BOASTING HEALTHY INVENTORY

The consumer electronics company saw inventory down 6% year-on-year in Q2.

By: Kate Magill • Published Sept. 9, 2022

While other retailers complain of bloated shelves, Best Buy is seeing its
inventory levels fall back to pre-pandemic trends, CEO Corie Barry said on a Q2
earnings call.

The electronics retailer saw a 6% YoY dip in inventory in Q2, Barry said, with
product supply at a “healthy” level. 

Barry attributed the positive trend in part to proactive inventory management
throughout the quarter as consumer demand changed. 

Best Buy also benefited from its growing outlet network, which allows the
company to tap into a new consumer segment and “unlocks a very productive way to
refurbish inventory, giving it a new life,” Barry said. 

The retailer opened two new outlet stores in Virginia and Phoenix during the
quarter and opened a new location in Chicago last month, bringing the national
total to 19.

Although Best Buy didn’t have excess inventory, bloated levels across the
industry still weighed on the retailer’s bottom line. The Q2 promotional
environment was more aggressive than anticipated, CFO Matthew Bilunas said, as
other retailers drive a discount-heavy market in an effort to clear shelves.

Walmart CFO John David Rainey said on the company’s August earnings call that
home electronics remained one of the retailer’s most overstocked product
categories headed into Q3.

Such promotions contributed to a softening in Best Buy’s operating profit, which
dropped by more than half compared to a year ago. 

“Generally, we’re back to where our levels of promotionality were before the
pandemic started,” Bilunas said.  “And that has more to do with the general
amount of inventory in the channel right now that, as the consumer demand wanes
and inventory increases, there’s just generally the dynamic of having more
promotionality,”

Best Buy has bounced back from product shortages during the last peak season.
The CEO noted that the company is still experiencing inventory constraints in
some areas, such as computing and gaming, as global chip supplies remain tight.

“In our industry, it’s not as simple as we have inventory or we don’t,” Barry
said. “It can be incredibly variable by product and even brands within a
particular product.”

Article top image credit: Courtesy of Best Buy


RETAIL INVENTORY IN 2022: NORMAL IS STILL NOWHERE IN SIGHT

With Target taking the vocal lead, retailers are flushing out excess inventory
to reset for the holidays. How much they’ll sell then is anybody’s guess.

By: Ben Unglesbee • Published July 8, 2022

If you know anyone who works in demand forecasting or inventory management for a
retailer, they could maybe use a hug.

These were always difficult jobs, based in no small part on the vagaries of
consumers tastes, trends and various intersecting markets and economies. The
pandemic era has thrown several new layers of difficulty in planning and
purchasing inventory. From panic buying to supply shortfalls to historic
inflation spikes, the intensity by which the environment can change is matched
only by the speed of that change.

Target’s shocker earlier in June highlighted how quickly the world changes. Just
weeks after cutting its profit expectations for the second quarter, the retailer
cut them again, dramatically. Just as importantly, the retailer signaled it was
moving to clear inventory through markdowns and other measures, and would be
canceling orders.

It was a sign of the speed and severity of consumer changes and cost inflation.
It also portended rocky days ahead for the industry as it prepares for the
all-important holiday season. Retailers, brands, wholesalers and other industry
players are trying to match inventory with consumer demand — whatever that will
be for the season.

“They’re guessing. They’re all guessing. And any one of them that tells you
they’re not guessing, they’re lying, because they don’t know,” John McQuiston,
managing director and global head of originations, receivables and trade finance
with Wells Fargo, told Retail Dive in an interview. “The demand levels are
entirely unpredictable. Consumer behavior is unpredictable. … This is a bit of a
crystal ball Christmas.”


‘RAPID REVISIONS’ AT TARGET

While some analysts called out Target for the planning miss, the announcement
was illustrative of several things going on in this particular moment in retail.

Baked into Target’s description of what it was doing and why was a kind of
whiplash. Customers changed their purchasing behaviors much more quickly than
the company anticipated, whether through bad luck, poor planning or some
combination of the two.

From Target’s past earnings call, as well as those of Walmart and other
retailers, it’s clear that consumers are reacting to price inflation,
particularly in food and fuel, the latter of which has skyrocketed since Russia
(a major oil producer) invaded Ukraine and has exacerbated already elevated
supply chain costs.

--------------------------------------------------------------------------------

“They’re guessing. They’re all guessing. And any one of them that tells you
they’re not guessing, they’re lying, because they don’t know.”



John McQuiston

Managing Director & Global Head of Originations, Receivables & Trade Finance,
Wells Fargo

--------------------------------------------------------------------------------

Target’s post-earnings announcement was a sign of just how quickly consumers
were changing. The retailer said at the time that it was making “rapid revisions
to sales forecasts, promotional plans and cost expectations by category.”
Specifically, the company cut its forecasts for discretionary categories —
calling out home goods by name — while expecting strength in food, household
essentials and beauty.

Following Target’s announcement, Bill Kirk, managing director with MKM Partners,
said in a research note that the analyst team observed “strong discounting” in a
store visit to Target in discretionary sections of the store.

And while Target said it is clearing inventory to help foster top-line growth —
by pivoting to better-selling (if lower-margin) products — the move is not
without risks beyond the profit hit.

“We worry that large discounts could damage Target’s brand image: 1) part of the
apparel department looked like a Ross ... store; 2) the electronics department
looked like Black Friday; and 3) outdoor goods looked like it was Winter,” Kirk
said in the note. “We worry that even after inventory clears, some impact could
remain.”

Mismatches in supply and demand, and sales and inventory levels, extend far
beyond Target and cover many if not most discretionary categories. As one
example, HSBC analysts said in a mid-June note they were “[b]racing for another
lap of complexity” in the sporting goods sector.

The “[b]iggest risk in our view is the sector moving from inventory shortages
last year to a glut as early as H2 this year,” the analysts said. “With tight
inventories, the sector enjoyed some gross margin support (more full-price
sales); with supply chains functioning a lot more efficiently now and possibly
some over-ordering, we could soon be in a situation in which inventories are
larger than what the market can absorb.”

BTIG analysts Camilo Lyon and Mackenzie Boydston said in a research note that
they heard from retail contacts that Nike was “surprising” wholesale partners
with more “at-once” orders potentially due to slowing DTC sales, thus “creating
a need to place late-arriving inventory.”

The analysts said the move “is surprising to us since at-once orders have been
relatively rare in this supply-constrained, COVID environment as [Nike] has
struggled to get back into a normalized delivery cadence.” But they also noted
that “not all is dire, as retailers that have been starved for inventory are
getting it, and seemingly selling through it.”


‘CANCELLATIONS, DELAYS AND MARKDOWNS’

All of this shows how an adaptation to one extreme circumstance suddenly became
a disadvantage. “What happened is that the retailers started to buy a lot more
in anticipation of the issues of getting goods and bringing them on shore,” Joel
Wolitzer, senior vice president and business development officer with Rosenthal
& Rosenthal, said in an interview with Retail Dive. “And so they were trying to
backfill to compensate for the supply chain issues at the height of the
pandemic. Now they have a lot of inventory that’s not moving as quickly as they
would have liked.”

Importers that Rosenthal & Rosenthal works with “are seeing cancellations,
delays and markdowns and deductions that the retailers seem to be taking,
because of this backlog,” Wolitzer said.

Prediction hiccups have become endemic with the pandemic. “Retailers, right at
the start of the pandemic, marked everything down because they all thought
they’d be fighting off bankruptcy,” Wells Fargo’s McQuiston said. “The
government then sends multi-$1,000 checks to the entire American population
unexpectedly. And everybody goes out and shops and finds the stores are empty
because all the merchandise has been either sent off to consolidators, or marked
down and sold.”

That was early in the pandemic. More recently, McQuiston noted, billions of
dollars in merchandise has been sitting on boats waiting to be unloaded into
warehouses and go on to shelves, while at the same time “the consumer has been
tapped.” Again, prices for daily life needs — food and gasoline — are putting
pressure on the vast majority of consumers who aren’t wealthy. (The wealthy, as
always, have a buffer against economic travails, as does the luxury sector.)

There’s another factor affecting discretionary spending along with inflation,
again related to the pandemic. David Silverman, senior director at Fitch
Ratings, said in emailed comments following the May retail sales figures that
they showed “consumers are less interested in buying more things and instead are
focusing their attention on travel, entertainment, and other services.”

Some have called out retailers for not being ready for any of these various
factors. “[R]etailers seemed to have taken an approach of full-bore for pandemic
habits until they saw real evidence that the behavior was shifting — and, for
inventory management, that’s way too late,” Nikki Baird, vice president of
strategy for retail technology company Aptos, said in emailed comments. “You
can’t stop a supply chain on a dime, as we already learned during the pandemic.”

All that said, the attention to inventories may be overstating the issue. Jason
Miller, associate professor of logistics at Michigan State University, analyzed
Q1 data for six major retailers who are also major importers: Walmart, Target,
Home Depot, Lowe’s, Dollar Tree and Costco. With the exception of Costco, the
days to turn inventory in Q1 this year increased over 2021 and 2019 by varying
degrees. But, Miller said by email that the increases “aren’t suggesting that
these retailers will need to suddenly curtail a large percentage of their
orders.”

Miller added, “My conclusion looking at this is that while we will see retailers
be more deliberate in their ordering over the coming months, we are unlikely to
see a sudden sharp drop in imports.”


BUT HOW BIG IS THE INVENTORY DECLINE, REALLY?

With all that in mind, the holidays are going to be complicated, to say the
least.

Asked how retailers are planning for holiday inventory, McQuiston said they were
doing so “with a great deal of emotion.” Once again, the retail world is headed
into a holiday season defined by — to use a word that has been overused but
unavoidable since the pandemic began — uncertainty. A safe bet, with the
understanding that everything could quickly turn, is that consumer momentum
won’t be what it was last holiday cycle.

Fitch expects heightened promotions through the summer as retailers clear excess
inventory. Silverman noted that “reduced inventory orders for the back half of
the year could help overall industry health while easing some supply chain
concerns.”

For now, retail products are still shipping, Target’s cancelations
notwithstanding. Imports in April remained at near record high volumes,
according to tracking by the National Retail Federation and Hackett Associates.

“We’re in for a busy summer at the ports,” Jonathan Gold, NRF’s vice president
for supply chain and customs policy, said in a June press release.
“Back-to-school supplies are already arriving, and holiday merchandise will be
right behind them.”

Government data pulled by Michigan State’s Miller also shows import levels well
above 2019 levels in April (by 37%, according to Miller’s analysis). “What I
want to emphasize is that there is no precedence beyond a monumental economic
calamity (e.g., the original COVID shutdowns, the Great Recession) for sharp
drops in volumes,” Miller said.

But whether retailers will be able to sell all the goods coming in today is the
big question. And with freight, fuel and labor costs elevated for retailers, the
pressure is on those doing the purchasing and inventory planning in a market
that continues to defy prediction.

“There’s a lot of noise out there with inflation and rising [interest] rates,”
Wolitzer said. “If retailers are able to flush out some of the non-performing
goods, they’ll make room for strong purchases for the holiday season. But
there’s only so much room on the floor and in their warehouses to take
merchandise in. Which is why importers are facing delays or cancellations.”

Article top image credit: Courtesy of South Carolina Ports Authority



HOW GROCERS ARE MANAGING THE TWIN PRESSURES OF SUPPLY CHAIN DISRUPTION AND
INFLATION

Companies need to be particularly “agile” in 2022, one expert said, as high
demand and shortages can make inflation appear quickly.

By: Jeff Wells • Published Jan. 31, 2022

Like grocers across the country, Karns Foods in Pennsylvania is grappling with
rising prices and a rotating cast of supply chain shortages. That lack of
control has been tough to swallow for Scott Karns, the 10-store company’s chief
executive.

“We order 2,000 cases and we might get 1,200,” he said. “It’s very frustrating
for our customers to explain to them why they can’t get exactly the flavors and
the sizes they want.”

The company is managing as best it can, Karns said. To combat price increases,
Karns’ stores are stocking their aisles with more private label products, which
offer lower price points. To deal with supply shortages, managers are buying
surplus quantities of items like toilet paper and pasta sauce when they can and
offering shoppers a limited assortment in strained categories.

Karns said the company is also planning to source more products locally,
including pork, which used to come from a Midwest supplier and now comes from an
in-state one. In May, the grocer planned to source around two-thirds of its beef
supply from a handful of local farms that will exclusively supply Karns’ stores.


A local Angus farm that supplies beef to Karns Foods.
Courtesy of Karns Foods
 

Karns noted shoppers have rolled with the changes, but he’s not sure how long
that will last. “The basket is going to get more expensive as the year goes on,”
he said.

Retailers are nervously watching their shoppers as rising prices and
out-of-stocks continue to plague their aisles. According to recent news reports
and interviews, the main impact of these prolonged disruptions to date has been
shoppers buying lower-priced items and grumbling about empty shelves.

But loyal consumers could reach a tipping point later this year, companies fear,
and switch to stores that offer better prices or different products. During its
third-quarter earnings call, Albertsons executives noted the pressure
competitors put on any decisions the grocer makes around pricing, and said that
while its shopper loyalty is “strong” right now, the company is remaining
watchful.

In an Ipsos survey of 1,000 consumers released in early December, 45% reported
buying items from a store other than their primary grocer at least once a month
thanks to supply strains or a poor online ordering experience. Eighteen percent
of households with kids said they’ve changed to another primary grocer because
of these factors.

“There’s enough competition out there that consumers are changing their
behaviors if what they need isn’t in stock,” said Mike Murphy, a vice president
with Ipsos.

Krishnakumar Davey, president of client engagement with IRI, said the research
firm is monitoring consumer elasticity, which measures shoppers sensitivity to
price changes, “extremely closely.” After a period of low elasticity earlier in
the pandemic, when stimulus checks, child tax credits and at-home lockdowns
fueled higher spending, that metric has started to rise to pre-COVID levels in
many categories, he said. As of early January, breakfast meats and coffee were
showing price sensitivity in line with those seen before the global health
crisis, while hot cereal and candy were showing higher elasticity than
pre-COVID, Davey said.

Across many categories, consumer elasticity is still lower than before the
pandemic, Davey said, suggesting retailers have room to pass along price
increases from suppliers, which have been hit with higher wages, shipping
disruptions and other pressures. But retailers are concerned that the end of
federal aid programs, like the expanded child tax credit that expired at the end
of 2021, coupled with prices rising at a faster clip, could magnify consumers’
frustrations.

Food-at-home prices rose 6.5% last year, according to the U.S. Bureau of Labor
Statistics, and manufacturers are passing along additional increases beginning
this month. IRI projects prices will rise an average of 5% in the first half of
this year.

“What [retailers] are apprehensive about is that some of the stimulus is drying
out, and price increases are going through a lot more this year than last year,”
Davey said. “They’re saying we know that people like to eat at home, but people
can substitute.”

--------------------------------------------------------------------------------

“We order 2,000 cases and we might get 1,200. It’s very frustrating for our
customers to explain to them why they can’t get exactly the flavors and the
sizes they want.”



Scott Karns

CEO, Karns Foods

--------------------------------------------------------------------------------


STAYING ‘AGILE’ AMID PRICE INCREASES

Although the root causes of inflation are beyond retailers’ control, there are
ways to effectively manage these price increases, experts said. Executives at
Albertsons and other grocers have spoken about holding back increases on
essential goods and key items while letting them flow through on more
discretionary purchases.

Davey said IRI’s scan data shows grocers are keeping down prices on fresh goods
like milk, eggs and meat and increasing prices across center store categories.
They’re also pulling back on price promotions due to supply shortages and other
challenges. He said that, percentage-wise, the center store price increases
appear relatively the same across discount, mass and traditional retailers —
which is somewhat surprising, Davey said, as he expected low-price retailers to
hold back in an effort to win over comparison shoppers. But that could soon
change.

Davey said retailers that are able to push personalized coupons and other
promotions to price-sensitive shoppers are doing so.

“Right now, I think the main strategy is to give the discount to the buyers who
need it,” he said.


Winn-Dixie is lowering prices on more than 150 of its “most-shopped” items.
Courtesy of Winn-Dixie
 

Steve Bishop, managing partner and co-founder of consulting firm Brick Meets
Click, said retailers are using technology to spot price gaps and identify
high-value items where they should be price competitive. Companies need to be
particularly “agile” in 2022, he said, because the combination of high demand on
certain items and supply shortages can make inflation appear quickly anywhere in
the store.

“In the coming year, it will be even more important to change prices quickly to
minimize any price vulnerability from higher prices that negatively impact sales
or lower prices that negatively impact profit,” he wrote in an email.

A value-price image can go a long way, sources said, even if prices overall have
gone up. Marco Di Marino, director of consulting firm AlixPartners’ retail and
grocery division, said retailers are making selective price cuts and promoting
key items where they’ve kept inflation from trickling in. Retailers are also
adding more store brands and value-priced items to their shelves, said Di
Marino.

Krasdale Foods, which offers distribution and marketing services to independent
retailers in New York and New Jersey, is seeing higher private label demand from
retailers it serves, said Dennis Hickey, chief merchandising officer with the
company. But Krasdale’s private label suppliers are struggling with the same
supply-chain shortages national brands face — like shortages of tin and other
raw materials — meaning sometimes they don’t have the products in stock.

Many of the retailers Krasdale works with are in the New York City area, where
there aren’t many discount players like Walmart. That’s helped stores hold onto
customers, he said, though companies are still carefully watching shoppers’
behavior.

“We’re keeping a very close eye on trip frequency,” Hickey said.


LEARNING TO DO MORE WITH LESS

Retailers learned early in the pandemic how to deal with supply shortages and
communicate those to shoppers. The omicron variant, however, has once again
accelerated out-of-stocks that are often impossible to predict as suppliers and
distributors contend with worker absences and other challenges.

Executives are hopeful supplies will normalize beginning in February, after
omicron has ebbed. Until then, retailers like Go Grocer in Chicago are having to
limit their assortment and shuttle goods between stores to fill in product gaps.
Gregory Stellatos, co-founder and co-owner of the Chicago-based chain, said all
the supply shuffling during the pandemic has made shoppers less brand loyal.

“During this time, I think private label and emerging brands are the two
winners,” he said.


Optional Caption
Mario Tama via Getty Images
 

Hickey, meanwhile, said independent retailers have had to be very resourceful in
order to get the supplies they need. They’re cutting assortments by nearly half
in some areas, he said. If Krasdale doesn’t have an item they need, he said,
they’ll find another way to get it.

“Instead of carrying 25 flavors of Ocean Spray juice, they may be down to 15 or
16,” he said. “They’re spread out a little more, and maybe they’ve changed their
allocations, but our retailers will go anywhere to get product when they need to
fill shelves.”

Karns said shoppers at his stores have responded so well to limited assortments
that he’s planning to continue the strategy long-term. “How many sizes of Hidden
Valley Ranch do we really need?” he said.

The supply chain squeeze over the past two years has prompted Karns to make
other long-term changes. After years of contemplating starting its own beef
supply line, the grocer finally got started a year ago. It partnered with a
local farm-management organization and is now overseeing Angus cattle operations
at 15 family farms across six counties.

Karns Pennsylvania Preferred Beef selections will hit stores in May, Karns said,
and have their own dedicated section. All told, the operation will account for
around 70% of the grocer’s beef needs, and could get close to 80% after adding
several more farms. He said the new line will carry prices that are equal to its
current beef selections.

“I can go out and visit the herds, which is something I’ve never been able to do
in my 40 years in the supermarket business,” Karns said.

Article top image credit: Mario Tama via Getty Images


CAR PARTS SUPPLIER LOADS UP ON INVENTORY AS JUST-IN-TIME DELIVERY LOSES APPEAL

Companies that have what customers want when they want it are the ones coming
out on top in this environment, a CarParts.com executive said.

By: Maura Webber Sadovi • Published Jan. 24, 2022

CarParts.com’s CFO-COO David Meniane is one of an increasing number of financial
executives bulking up inventory and pushing back on the long-time trend toward
just-in-time lean inventory management.

The e-commerce company’s inventory, which focuses on gaskets and brakes and
other parts for car owners, has risen to $131.7 million as of the third quarter,
nearly 3x the size it was before the pandemic in December 2019, according to SEC
filings.

Meniane believes the approach has helped grow the company’s market. The company
expected a 33% increase in sales to $582 million in fiscal 2021 compared to the
year-earlier.

“In this environment [just-in-time] doesn’t work. The longer the lead time, the
less reliable the supply chain, the more inventory you have to carry,” he told
CFO Dive. Otherwise “we lose the sale to whoever has inventory and is more
aggressive.”


David Meniane
Courtesy of CarParts.com
 

Meniane is part of a surge of companies that have reconsidered their leaner
approaches to supply chains as clogged ports, soaring container costs and
scarcity has led to bare shelves and threatened sales. Lean inventory
management, or just-in-time inventory planning, is the practice of trying to
match inventory level to consumer demand and it has taken hold in recent
decades, with U.S. companies adopting a method that Toyota is often credited
with.


AGAINST THE GRAIN

Loading up on inventory is a concept that Meniane agrees goes against the
instinct of CFOs to optimize returns and reduce carrying costs, but he sees it
as necessary now, although it’s likely “transitory,” he said.

Lean inventory management will come back into vogue again, probably by 2023, he
said. “I think it’s going to ease up in the next two years. As lead times
compress, you’re going to see more firms having less inventory.” His hope is
that his firm will ultimately have less inventory but maintain higher sales.

Meniane arrived at the company, formerly known as U.S. Auto Parts Network, in
2019 after spending nearly three years as executive vice president of L.A.
Libations and prior to that about six years as CEO of Victoria’s Kitchen. Since
he joined, the company has pursued a strategy focused on building a streamlined
vertically integrated supply chain, which puts the inventory closer to the
customer for a competitive advantage.

As part of the new strategy the company, which gained a tailwind during the
pandemic as customers flocked to online shopping, has been investing in its real
estate and technology, both designed to help it control its future rather than
rely on other vendors or outsourcing.

CarParts.com has gone from having two distribution centers in 2019 to six,
helping to reduce the average time that products get to customers to 1-2 days —
down from an average delivery time of nine days three years ago.

In addition, the company has invested in AI, machine learning, tools and
software. It has also hired a 12-person forecasting and data science team to
examine trends in inventory, freight and labor management and pricing. Among
their immediate tasks: use technology to identify trends that signal which
products he needs more or less of with the goal of ultimately moving to an era
of leaner inventory.

“We’re building a system based on machine learning and artificial intelligence
and when lead times start compressing we’ll get our capital back,” he said.

Article top image credit: Spencer Platt via Getty Images



JUST-IN-TIME AND SAFETY STOCK REQUIRE A CAREFUL BALANCE

Over the course of the pandemic, inventory has gone up, but so have sales. Are
companies rethinking lean or just trying to keep up with demand?

By: Matt Leonard • Published Nov. 10, 2021

Empty grocery store shelves in April 2020 and bare car dealerships in 2021 led
to a lot of finger pointing. And much of the blame fell on lean inventory or
just-in-time supply chain management.

Industries have worked for decades to cut costs by lowering inventory levels.
But it requires a careful balance. Inventory that’s too low means lost sales
when consumers can’t find the item they want to buy. The empty shelves during
the pandemic served as a wake-up call for businesses to carry more safety stock.

A Gartner survey published this year showed some interest among supply chain
professionals in increasing safety stock. Still, others say the benefits of
just-in-time are just too good for companies to give up on the practice.

And a look at some large companies’ inventory levels shows that while they are
higher in many cases, the companies have actually managed to return to a normal
level when it comes to inventory as a percentage of sales. This simply means
inventory has gone up, but so have sales, and companies are trying to keep up
rather than build safety stock.

INVENTORY BUILD-UP OR A RETURN TO NORMAL?

Second-quarter inventory as a percentage of net sales*

Take Walmart as an example. The value of inventory the retailer reported in July
was 6% higher than it was during the same quarter in 2019, but its sales had
increased more than 8%. Its inventory as a percentage of sales was back to where
it was in 2019 — with less than 1% difference — after falling more than 4
percentage points from 2019 to 2020.

In this context, Walmart’s inventory buildup seems less like a buildup and more
like an attempt to keep up. Still, executives at the retailer have also said
they would like inventory levels to be higher than they currently are.

“We were happy to report in the second quarter that we had a lot more inventory
than a year ago,” Walmart CEO Doug McMillon said at an analyst conference in
September. “In 2020, at the end of the second quarter, we were way too light in
stores and on the e-commerce side. So we would take even more inventory if we
could get it, especially in some categories.”

Every company has been affected differently, though. Hasbro has had a hard time
keeping its inventory afloat amid high demand. Sales surged more than 34%
compared to 2019, but inventory is down 11% compared to the same period, which
has led to its inventory as a percentage of sales dropping 20 percentage points.

“We’re ... working to ensure product availability during the holiday season,”
Hasbro CFO Deb Thomas said on the company’s last earnings call. “We may
experience some shifts in delivery dates and timing of revenue, but we’re
leveraging our global footprint and scale to meet demand.”


JUST-IN-TIME: TIME TO SHINE OR RETHINK?

Lean inventory management or just-in-time inventory planning has been a way of
thinking within the supply chain management world for decades, with Toyota often
credited with pioneering the method. The automaker famously redesigned its
supply chain after it experienced issues following a 2011 earthquake. In fact,
Japan adopted lean practices a full decade before companies in the U.S., John
Dalton, an economics professor at Wake Forest University, noted in a 2013
research paper.

The idea, which U.S. companies began to adopt, is simple: Businesses want to try
and match their level of inventory to consumer demand as closely as possible. In
a well-oiled supply chain, manufacturers can meet fluctuations in demand, and
theoretically sell more while reducing inventory carrying costs, Dalton wrote.

But as the pandemic swept around the globe, bare shelves had people questioning
the practice. With the global supply chain strained under the weight of the
pandemic, the Biden administration set out to understand what was going wrong. A
250-page report released in June outlines some of its findings — and it points a
finger at just-in-time.

The report from the Biden administration said just-in-time supply chain
management increased risk in industries from auto manufacturing to drug making,
as it reduced safety stock and companies’ ability to quickly adapt to upticks
demand.

--------------------------------------------------------------------------------

“We would take even more inventory if we could get it.”



Doug McMillon

Walmart CEO

--------------------------------------------------------------------------------

“In contrast to early projections, vehicle demand recovered much more quickly
than expected in the second half of 2020,” the report reads. “This sharp rebound
impacted the auto industry in part due to its just-in-time supply chains and
limited visibility into upstream suppliers. When auto parts suppliers returned
to place orders for chips to meet the unanticipated surge in vehicle demand,
semiconductor manufacturers had reportedly already utilized spare capacity to
produce chips for electronics devices.”

Biden touched on this reality again recently, addressing port congestion and
supply chain challenges more generally.

“Prior to the crisis, we shared the focus on lean efficient supply chains,
leaving no buffer or margin for error when it comes to certain parts arriving
just in time is needed to make a final product,” he said during a recent press
conference. He went on to note that there needed to be an investment in
increased resilience without specifying what this would consist of.


A NEW ERA OF SUPPLY CHAIN PLANNING

From the outside looking in, it appears that just-in-time supply chains have
caused more problems than they’ve solved over the last year. But companies still
seem interested in adopting the practice, experts said.

Paul Lord, a senior director analyst at Gartner, said he’s fielded almost 10
calls over two to three months about companies that want to work toward a
just-in-time supply chain.

“So the aspiration hasn’t gone away, at least not completely,” Lord said.

Dan Hearsch, a managing director in the automotive and industrial practice at
AlixPartners, agreed that the interest in lean inventory has not waned among
corporate supply chain planners. There could be some changes to supply chains
going forward.

“I think the changes will largely be represented in the safety stock
calculation,” Hearsch said.

This will mean keeping more inventory of what manufacturers consider critical
components. Figuring out what exactly will be considered critical will be an
“art” for many companies and the definition will likely be broader than it was a
couple of years ago, he said.

Part of the calculus is the number of alternative suppliers a component has. An
example of a non-critical component would be polypropylene as it has a lot of
different suppliers available, while something like xenon headlights have fewer
suppliers and are closer to the critical end of the spectrum, Hearsch said.

--------------------------------------------------------------------------------

“Prior to the crisis, we shared the focus on lean efficient supply chains,
leaving no buffer or margin for error.”



Joe Biden

President of the United States

--------------------------------------------------------------------------------

Companies might agree to order one or two years of stock from a supplier rather
than 12 to 14 weeks to help ensure they have the products available. That
doesn’t change the just-in-time delivery aspect of the component, Hearsch said.
The issue with committing to that much inventory is it cuts down on a
manufacturer’s flexibility.

“The supply chain planner is forced to compensate for shortcomings in agility,
and resilience with additional inventory,” Lord said.

And that’s why, in reality, just-in-time has been and will always be an
aspiration, Lord said. Uncertain lead times, squeezed shipping capacity and
manufacturing shutdowns during the pandemic exposed the need for buffer
inventories.

“When things get out of balance, you won’t be able to predict and count on what
you can and can’t get,” Hearsch said. “So you’re gonna have to plan in a selfish
manner.”

Article top image credit: Sean Gallup via Getty Images





WHAT THE FUTURE OF INVENTORY MANAGEMENT LOOKS LIKE

As economic conditions change, so do inventory management strategies. Few
industries showcase this better than the retail industry. Long term, businesses
across industries are rethinking what it means to have lean inventory on the
balance sheet and safety stock to meet sales.

INCLUDED IN THIS TRENDLINE

 * Off-price retailers shift tactics as inventory gluts squeeze the industry
 * Retailers take expensive measures to clear inventory ahead of peak season
 * Best Buy bucks the glut trend, boasting healthy inventory

Our Trendlines go deep on the biggest trends. These special reports, produced by
our team of award-winning journalists, help business leaders understand how
their industries are changing.
Davide Savenije Editor-in-Chief at Industry Dive.

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