Some of the largest national retailers in the U.S. are delivering the news to Wall Street and the world that they can no longer rely on higher prices to keep their budgets in the black. As the cost of food, gas, and other goods continues to rise, consumers have started to pull back on discretionary retail spending. Many retailers must now focus on reducing excess inventory levels and find new ways to meet changing consumer needs about when, how, and what they buy.
Here are four of the forces feeding excess inventory, along with some insights from Marshal Cohen, our chief industry advisor, retail, to help you navigate the tricky terrain ahead.
1. Seasonality is smoothing
For years now we’ve observed a shift in what and when consumers buy the things they want and need — and that shift has been turbocharged during the pandemic. Buying for the here and now has become increasingly popular.
Retail Inventories Reach Highest Point in Decades
Following a dip 2020, 2022 retail inventories reached a high point not seen in decades.
The traditional retail cadence, where new merchandise for spring hits stores in the middle of winter, is leaving shoppers cold — or worse: forcing them to shop online or at competitors stocking what they want, when they want it. That makes planning inventory a lot harder because retailers are forced to carry the products consumers want for longer periods of time.
2. Holiday peaks are flattening
While the Easter retail season didn’t fare too badly in the U.S. this year, the Mother’s Day, Memorial Day, and Father’s Day sales peaks — traditionally, important retail moments — were smaller compared not only to last year, but also to pre-pandemic 2019. This leveling-out of holiday sales raises alarms that consumers are not just pulling back on holiday gift spending, they might be intrinsically changing the way they shop.
Anticipating softer holiday peaks and deeper lows than the more reliable tendencies of years past is a harbinger of change. Retailers and manufacturers should prepare for significant competitive promotional activity aimed at creating more consumer excitement during the typically energetic retail shopping periods, including the upcoming back-to-school season.
3. Consumption is lowering
Our data indicates price elevation has shifted. For almost two years, U.S. consumers — many with federal stimulus payments padding their savings accounts — didn’t seem to mind spending more money to buy more expensive products. Sales revenue growth was higher than unit growth because consumers were, by and large, OK with paying higher prices. But as savings dwindle and inflation creeps up, consumers are no longer as willing to trade up or pay more.
2022 Units Tracking Below to Pre-Pandemic
We can see a consistent pattern in our data. The consumer’s focus has begun to swing back from shopping to saving. Along with rising interest rates, higher consumer debt, and higher prices, the carefree spending of the pandemic-minded consumer is finally giving way to more frugal shopping.
4. Upgrade cycles are shifting
The pandemic quickly shifted the upgrade cycles of many products, and we’re still dealing with choices made two years ago when U.S. consumers sheltered at home. With TVs, for example, consumers might have upgraded about every seven years. During the early part of the pandemic, when entertainment options were limited to the next streaming series dropping, many people bought new and better TVs. If retailers and brands want to change the tide and shift upgrades, they must give consumers good reasons to do so.
Weathering the storm of excess inventory and declining unit sales
Of course, the easy answers to excess inventory are promotions, discounting, and better planning in direct response to the four forces outlined above. It’s also important to monitor each retail category, and the segments within them, to ensure your shoppers don’t get disappointed and shift their business to your competitors.
Conversion is critical. Stores only have a few opportunities to convert shoppers into buyers. That means making sure your customers have quick access to the products they need right now, through improved supply-chain logistics, or by making sure it’s easy to move products quickly from one store to another.
The Impact of Rising ASPs
As part of the conversation around inventory challenges, our Checkout data reveals the impact of U.S. consumer’s spending changes, including lower consumption and higher selling prices in various industries.
Accessories
Average sales price (ASP) and spending per buyer (SBP) increased, versus last year, while purchase frequency has held constant
Apparel
ASP and SPB increased while purchase frequency decreased
Housewares
ASP increased while purchase frequency and SPB decreased
Technology
ASP held steady while purchase frequency and SPB has decreased
Sports Equipment
ASP has increased while purchase frequency and SPB decreased
Paul Gagnon Vice President, Industry Advisor, Consumer Technology
The pandemic resulted in a number of abrupt changes to consumer behavior, including the need for home to be a place you can not only relax, but learn and work. To cope with the shift to a hybrid or work-from-home environment, many consumers purchased technology products outside the boundaries of typical upgrade cycles, like upgrading TVs earlier than the typical seven year cycle, or investing in home office equipment despite the current age of their devices. These purchases pulled demand forward from future years. Now the technology market is transitioning back to a more normal or even slightly elongated upgrade cycle while consumers deal with building economic headwinds.
For the last two years, the normal seasonal shopping periods for tech products were altered as consumers bought products when they needed them, not waiting for promotional periods to purchase. In fact, fewer products were sold on promotion as consumers became less price sensitive, leveraging stimulus checks and savings from decreased experiential spending. In tech, this was especially true as many products were out of stock due to the sudden demand. However, with a return to experiences and building inflation, a subtle shift has begun back toward frugality. A rising percentage of tech shoppers now indicate that they will be waiting for promotions and discounts to buy. The 2022 holiday season could look a lot more like pre-pandemic times, but we expect retailers will look to smooth out demand in the weeks and months leading up to Black Friday, with a reduced volume peak on Black Friday and Cyber Monday proper, as compared to 2019, for example.
Nathan Shipley Executive Director, Industry Analyst
The automotive aftermarket is less concerned about oversupply, than other industries. While certain industries had inbound inventory for the holidays that never made it in time, and others had inventory that became dated even before it reached the U.S., those kinds of supply issues do not usually affect our industry.
Recently, we have observed a dramatic decline in discretionary category sales, like accessories and appearance chemicals, which can be attributed directly to higher fuel prices. In the past, we also observed consumers delaying maintenance or stretching out maintenance intervals, which is likely to be happening now, as well. Gasoline supplied is a proxy for demand, so it’s important to note this bellwether declined almost 8%, compared to pre-pandemic 2019. While more people are driving to workplaces again, and they are also embarking on summer road trips, it’s clear that the gasoline demand situation is taking a bite out of consumers’ budgets for aftermarket supplies and other products.
Maria Rugolo Director, Industry Analyst
U.S. consumers faced higher prices for apparel in January 2022, despite traditionally being the time of year retailers rely on sales and markdowns to get rid of excess inventory. Earlier this year apparel shoppers were faced with fewer promotions, higher prices, and less price sensitivity. Fast forward to June 2022, as retailers look to reset before the holiday season begins. Inflation and other global economic impacts, coupled with an increase in inventory, are beginning to spur more apparel promotions.
Of course, promotions only attract consumers who can spend. Households with an annual income under $50,000 will be very targeted in their apparel spending. On the other hand, households with incomes over $100,000, which contribute half of all apparel sales revenue, will selectively spend on deals. These households are currently spending more on apparel purchases, but they are buying fewer products, further proving their selectiveness toward spending.
Beth Goldstein Executive Director, Industry Analyst, Footwear & Accessories
While logistics challenges have eased, they are still a factor in some areas and will continue to impact inventory flow. Brand and retailer promotional decisions will likely need to be more fluid than in the past as consumer demand remains volatile.
In the months ahead, a return to pre-pandemic behaviors, such as more in-person work, travel, and attendance at events and gatherings, will continue to boost demand for several footwear categories; however, consumers are also likely to be affected by rising costs in other areas, including gas and groceries, which will put pressure on footwear-industry growth this year.
Dirk Sorenson Executive Director, Industry Analyst
Across the U.S. sports equipment market, there was a major shift in demand for larger equipment purchases in the summers of 2020 and 2021. Categories like bikes, golf clubs, and cardiovascular equipment experienced major and unique increases in sales revenue growth. However, there has been a downward shift in demand for these types of products in 2022. Cycling was down by 23% year to date through April 2022, and fitness equipment was down 30%. In all categories, these downturns mask the fact that these categories are still dramatically larger than they were before the pandemic.
We are returning to a more normal mix of consumption for these activities. Consumers are shifting to a pattern of purchasing items that require consistent replacement. This shift is creating sales revenue share gains for golf balls and losses for golf club sets, as one example. Team sports equipment sales for youth sports are now bouncing back, as those activities are returning to a more predictable calendar. This return to youth sports has resulted in 4.5% growth in equipment for activities like football, baseball, softball, soccer, and lacrosse. And the desire to add on to previously purchased bigger items is leading to growth in categories like abdominal trainers, up 22%.
