Full Warehouses: Why Retailers Now Have Too Much Supply

Key Insights:

• Miscalculated supply and increased returns have led to overstock.
• The rate of consumer returns has doubled since 2019.
• Miscalculated supply is leading retailers to make major price cuts.

Retail has been having a heck of a time keeping up with drastic changes. First covid demands left shelves empty, then supply chain issues caused significant delays, and now inflation is hitting consumer spending. Retailers’ optimism about continued expenditure led to an increase in supply. Unfortunately, consumer spending is down.

“We’re hearing about retailers having way too many consumer goods. And paying a pretty penny to store and shelf those goods that just aren’t moving as quickly as they were during the pandemic,” said Rachel Neill, the founder of Figgy. According to CBS News, “some stores are overstocked by more than 30%, and there’s no place to put everything.” The New York Times calls it a ‘hangover’ after a two-year binge of consumer spending, “fueled by government checks and the ease of e-commerce.”

Supply Chain Bottlenecks

According to The Wall Street Journal, “Delivery delays caused by port backlogs, factory closures and other supply-chain bottlenecks have caused many retailers to extend their buying cycles to ensure goods get on the shelves.” Retailers were adjusting from ‘just-in-time’ inventory to ‘just-in-case,’ and with demand dissipating, it’s come back to bite them. The New York Times reported that “Miscalculated supply, supply chain issues urged retailers to secure items far in advance.”

The supply chain has felt many clogs in its various bottlenecks. On a macro level, cargo docks were disrupted. But even for last-mile delivery, truckers could not get the necessary parts to make repairs. At the height of it, retailers were put in a difficult situation. Retail purchasing habits shifted and became drawn out. Purchasing items ‘just-in-case’ in an attempt to stay competitive. Again, from The Wall Street Journal, “Retailers have in some cases ordered twice as much as they needed to get one-third of what they wanted.” Supply chain and mass ordering are just one facet of the current retail overstock.

Returns on the Rise

Consumer returns are compounding the current oversupply. Retailers see unprecedented returns. Not all returns are put back on the shelf or online inventory. The New York Times reported returns to account for a loss of $761 billion in sales.

Some retailers aren’t taking the physical item back to save space in their warehouses. When a customer wants a return, they’ll refund the money but tell them to keep the item instead of bringing it back.

Liquidate to Stock Seasonal

It all leads to a significant shift ahead for retailers and consumers. Overstock leads to price slashes or an increase in stock at liquidators. Neill expects “a shift in what consumers are buying because things will be at a certain discount in some channels.” Unfortunately, not all retailers will be able to survive significant cuts. “Retailers may be unable to keep up with inflation and price slashes [from other companies],” said Neill. Unfortunately, smaller shops are bound to feel the worst impact of inflation, decreased consumer spending, and price cuts.