There is still chaos in the supply chain for retailers, but different retailers are facing different types of chaos.
By Wolf Richter for WOLF STREET.
There are now stories out there that retailers are suddenly becoming “overloaded”, and that shortages have become abundant, and suddenly people are already seeing that supply chains were miraculously fixed or whatever. However, the total inventory of dealers is still very low, and in the largest category of dealers – car dealers – inventory is desperately low, and it is low in other categories of dealers, but general retailers, such as Walmart and Target, are suddenly flooded with some types of goods. .
What happened at these general retailers, and some others, is that eternally long delivery times and snags and chaos have delayed merchandise, and when they finally got there, consumers had switched to other things. And these retailers ran out of things consumers had moved to, and were crowded with things consumers were no longer interested in.
Total dealer inventory, in the form of months’ supply, is still close to historically low.
Having the wrong inventory on hand is a classic dealer problem. To minimize this risk, retailers have shortened their supply chains, and they postpone major product decisions until the last minute. And then the pandemic struck, and that solution became a big problem, and dealers had to adjust on the fly. And some dealer categories were taken on the wrong foot and are overcrowded, while many other dealer categories have very tight inventory or shortages, including the largest category of dealers – car dealers – who are still out of inventory. The total stock-sales ratio – or months supply – at retailers has only improved slightly to 1.18 months supply:
Inventories in dollars = furious cost growth, not rising inventories.
Inflation in goods – which is what retailers sell – has been far higher than the overall CPI. For example, wholesale prices for used vehicles, which become the cost of inventory for dealers, increased by 35% to 45% year-over-year between October last year and February this year. These cost increases have increased the inventory in dollars, although the inventory of used vehicles in the form of vehicles is still tight and has actually fallen over the last three months.
What matters: months of supply.
To rule out the effect of the rising cost of goods, and to get a sense of what actual inventory levels are in relation to sales, we look at the “inventory-sales ratio”, which is a classic industrial calculation that shows how many months it takes to sell the inventory on hand at the end of the month with the current sales rate.
Last week, the Census Bureau released data for retail through April. The end of April is also when the financial Q1 for most retailers ends, including Walmart and Target.
We will look at it by category of dealers, because there are big differences.
At car dealers, the largest category of dealers, which in normal times accounts for over 35% of the total inventory, inventory remains desperately low, with 1.28 months supply, down from about 2.2 to 2.4 months supply before the pandemic. And they have hardly made any progress at all:
Car dealers are now struggling with another problem: Pickups and large SUVs were at their peak in 2020 and 2021 and earlier in 2022, and no one had any in stock due to the semiconductor shortage. Car manufacturers prioritize the production of these vehicles because they are far more expensive and profitable than smaller vehicles, and if they could only build a limited number of vehicles due to the semiconductor shortage, they would build the most expensive and profitable to maximize their revenue and profits – something they did.
Then petrol prices started to rise earlier this year, and suddenly consumers chased after more economical cars and compact SUVs and hybrids, and now dealers are out of them, they are almost all gone from stock, while pickup cars are starting to pile up at some brands. But overall, the stock of new vehicles is still desperately low.
Number of new vehicles at dealers, according to data from Cox Automotive, has fallen by 70% from 2019, to just 1.13 million vehicles by the end of May. Many models, especially now more economical cars, have largely disappeared from inventory.
Number of used vehicles at dealers, with 2.47 million vehicles being tight and below pre-pandemic levels, but there are sufficient offers for the lower sales rates at the moment, which are being held down by a partial buyer strike against these sky-high prices:
In food and beverage stores, The supply is almost back to pre-pandemic levels, at 0.78 months, which is a good thing:
At building material and garden material retailerssupply is now back at the upper end of the pre-pandemic normal range, at 1.87 months, the same as in April and May 2019:
In clothing and accessory stores, inventory has improved from the desperate levels last year. The current supply of 2.12 months is approximately 13% below where it had been in the same period in 2019:
In general stores, which accounts for approximately 12% of total inventory and includes Walmart and Target, inventory has increased sharply as their goods have finally arrived. Meanwhile, consumers shifted their expenses to services such as travel and dentists and entertainment events, and to goods that these stores were suddenly out of, and now there are rich levels of offers, but some of it is the wrong thing, with a lack of the right things. The increase in 1.58 months was the highest since 2007:
Do you enjoy reading WOLF STREET and would you like to support it? By using ad blockers – I understand why – but do you want to support the site? You can donate. I appreciate it immensely. Click on the beer and ice cream mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.