Cutting down on inventory is helping retailers match demand this holiday season. Healthier supply chains are helping retailers make better-sized orders.
Usually, when you think of the holiday season, you’d think retailers would beef up their inventories. This year, that’s not the case.
In 2022, retailers struggled around the holiday season with overstocking. This was because of the supply chain disruption that plagued much of 2022.
Retailers attempted to counter hectic supply chains by making larger orders. However, this meant many retailers were overstocked on many products.
At the beginning of 2023, supply chains began to normalize, and many retailers decided to make short-term losses by removing excess inventory to make room for new inventory, which would help them in the long term.
With supply chain chaos out of the way, retailers can tighten their belts to better adapt to demand for the 2023 holiday season and boost their operating margins.
Less chaotic supply chains also meant that instead of making fewer larger orders, retailers could make more frequent smaller orders.
With leaner inventories, retailers can be more reactive to changing demand and can order trending products more frequently as they have more space and a supply chain they can depend on.
Ben Unglesbee of Supply Chain Dive summarized how retailer inventories had decreased YoY (Year-on-Year) from July 2022 to July 2023.
- Walmart -5.3%
- Target -17.2%
- Kohl’s -13.9%
- Macy’s -10.4%
- Dollar Tree -1.7%
- Nike -10%
- Abercrombie & Fitch -30.3%
- American Eagle Outfitters -7.3%
- Gap Inc. -29%
However, Unglesbee noted that not all retailers were following this trend. Dollar General’s inventory was up 8.6%, Lululemon Athletica’s increased by 13.6%, and Under Armour was up 38.4%.
Stocking up to such an extent appears to negatively correlate with decreased operating margins. However, it’s not always that straightforward. Increased stock could also be the result of a retailer expanding.
Furthermore, as David Bergman, CFO of Under Armour, pointed out, they don’t have a lot of older products making up their inventory.
Software is often touted as the top reason retailers can better keep their inventories in order.
Sellercloud, for example, can help companies balance their inventories for the holiday season and avoid burdensome overstocking.