Brendan Case and Allison Nicole Smith have a rather chilling article at Bloomberg on the collapse of the stocks of major retailers. “Horror”, “meltdown”, “disastrous”, “bloodbath”, and “freefall” all figure prominently. Eventually they seem to run out of descriptors.
The short version of what has happened is that inflation and, frankly, panic are causing shoppers to change from name brands to cheaper private labels and from discretionary items like television sets and clothing to more basic items and services. Not only are their profit margins higher on what shoppers were buying than they are on what they are buying, inventories of what they aren’t selling are buying to pile up. Assuming they’re doing floorplanning, that means that either the retails will start paying interest on those unsold inventories or they’ll need to discount them to get rid of them. Here’s a snippet from the article:
The retailers now find themselves flush with clothes, televisions and other discretionary items that customers aren’t buying as they channel more spending into basic needs and services. As a result, the companies took markdowns that eroded profits.
It’s possible that Costco dodged some of that pressure since its narrower range of items gives it more flexibility, said Jennifer Bartashus, an analyst at Bloomberg Intelligence.
“We’re going to be thinking a lot more about inventory and the markdown risk that may be associated with inventory,†Bartashus said. “That will be an overhang for earnings next week, and it will be an overhang later into the year as well.â€
Earnings reports from Dollar General, Dollar Tree, Gap Inc., Urban Outfitters Inc. and Abercrombie & Fitch Co. are expected next week. Those should give us a better notion on the contours of the situation.
“…causing shoppers to change from name brands to cheaper private labels and from discretionary items like television sets and clothing to more basic items and services.”
How many times have I pointed out what should be obvious, the customer will tell you your price. And they will stop buying (or find alternatives) at a certain point. This usually comes up in debates over corporate taxes, business’s regulatory costs, immigration and importation.
If the inflation rate, “without the volatile food and energy sectors” (snicker), is 8%, what must real inflation be? 12%? More? All the happy talk about money saved during the pandemic, wage growth and unemployment rates (look at number employed pre and post pandemic, instead) is willful denial that consumers and the economy are getting slaughtered and running out of purchasing power. They will run up their credit cards first, but this cannot continue.
You take a hysteria and use it as an excuse to disrupt an entire economy, all its productive capacity and logistical support, and replace it with Treasury helicopter money indiscriminately spewed out and monetized by the Fed – and then you overtly take one of the most crucial and pervasive inputs, fossil fuel energy, and make it public enemy number one – and what do you expect?
This will get sorted out, but only over time, and only if the usual nostrums proffered by Progressives and the Biden’s and Pelosi’s of the world are ignored. If you believe polls it appears that party first is losing to the instinct of self interest, or even self preservation. But with a media all but the official mouthpiece of Progressives and with the ability to shape narratives who knows? I happen to think that when you get gut kicked every week at the store and gas station the media narrative doesn’t much matter. But now, for your distraction: monkeypox.
If Biden, aping Pompeo/Bolton, gets his China war, the retailers excess inventory problem will go away right quick.
Don’t forget Amazon. The earnings they released for Q1 was pretty bad for their retail component; which was overshadowed by AWS.
An interesting question is will it affect hiring by Wal-Mart and Amazon; two of the biggest employers in this country.
Nearly all of Amazon’s profits come from AWS; it’s barely a retailer at all. The warehouses are devoted more to retail services than they are to Amazon’s own sales.