Heads up: markdown mania — the retail fix to offset bloated inventory levels — is just around the corner and coming to a store in your town.
Markdown mania has already battered the balance sheets of powerhouses Walmart, Macy’s, Costco, Best Buy, Target, and others.
In fact, Bloomberg recently reported that inventories for S&P companies with a market value of $1 billion spiked some 26% from a year ago to a whopping $44.8 billion.
Walmart, Bloomberg also reported, took a hit to pay for additional inventory storage while Target and others saw profits nosedive due to price-cutting to trim excess inventory.
A few weeks ago, Target, reflecting the moves of many other retailers, announced that it was canceling orders and marking down inventory, particularly home goods and apparel, in hopes of shedding excess inventory, out ahead of the all-important holiday shopping season.
Target blamed the move on an unanticipated and mercurial shift in consumer spending as Americans suddenly took dollars previously spent on home furnishings and began spending them on dinners out, travel, and fancier apparel meant to be worn outside the home.
In the case of Target, and others, the consumer’s sudden shift away from buying furniture, wide-screen televisions, and appliances left retailers top-heavy with inventory that suddenly wasn’t moving, at least not like it did a year ago.
If you’re wondering if this is important, consider this: When reporting its profits for the fiscal first quarter, Target’s profits fell by 52% when compared to the same period the year prior.
And if it seems like I’m picking on Target, I’m not.
Most retailers are in the same boat due to changing consumer preferences, buying the wrong merchandise, rolling the dice to stockpile inventory, paying for additional storage, renting their own cargo ships, and in some cases, now trying to sell ‘dated’ products that never arrived in time for the last holiday season.
The bottom line is that the bottom lines of all the ‘retail names you know’ — Walmart, Costco, Macy’s Target, The Gap, Costco, and others — have been spanked and sent to their rooms for getting a D in math.
This is what happens when the dollar value of a retailer’s inventory is larger than the store’s profits in a given quarter.
So, what’s my call for the rest of the year?
I think the consumer is clearly in the catbird seat and will stay there.
Consumers are still spending, even with spiking prices for gas, food, and utilities. They just aren’t buying home furnishings at the same rate they were a year or so ago.
Retailers facing the double whammy of too much inventory and not enough shoppers will now have to either spin the dice, slash prices and play markdown-mania, or face the possibility of a slow death from 1,000 cuts.
Either way, I wouldn’t anticipate a Summer of Love.