- Walmart just revised its earnings outlook, partly because it’s going to slash prices again.
- That’s because they have a backlog of pandemic-era products they need to offload.
- Now that shoppers have shifted their focus, retailers need to make space for travel items and back-to-school supplies.
Walmart announced Monday that it will be implementing markdowns across its inventory in response to too much inventory and inflation affecting consumers’ ability to shop.
“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” Doug McMillon, the company’s CEO, said in a statement about its second-quarter earnings outlook.
And it’s not just Walmart: one Twitter user was ecstatic about the furniture and home decor sales at Target last week.
“Target having a sale,” the user going by the handle @_dimelodennise posted. “Studio McGee between 25-30% off. My cart is just full of vibes right now,” adding, “I got bookends, a bowl/beverage pitcher set, a round mirror, and a few vases yesterday. Now I’m tryna find which target has the lamps I want and throw pillows for my bedroom.”
Promoting shopping deals might seem surprising after months of rising inflation, but some retailers are announcing huge sales this summer as they struggle to adjust Americans’ changing shopping habits. And the sales might help offset some of the pain that rising prices have inflicted.
It’s the result of the response to last year’s supply chain crisis finally catching up with companies. The merchandise on cargo ships stuck overseas a few months ago is now saturating store shelves, and retailers need to get rid of them. Data from the St. Louis Fed shows that non-auto inventory has grown by nearly $100 billion between April 2021 and April 2022. That’s bad news for the stores like Target, who are looking to cut their inventory, and good news for consumers, who are benefitting from major discounts after inflation took some bang out of their buck.
“It’s a retail armageddon,” Burt Flickinger, managing director for Strategic Resource Group, told CBS News last week. “You have too many goods and too many stores chasing too few shoppers with too few dollars,” Flickinger said.
Retailers like Macy’s, Target, and Walmart have confirmed this in recent weeks, saying that they are overstocked with products their customers were buying up only a few months ago, like sweatpants, televisions, video games, and home goods. Now that shoppers’ budgets have shifted to travel and service spending, stores are saying they need to get rid of this excess inventory.
“There is clear evidence that inflation is slowing,” Dean Baker, co-founder of the Center for Economic and Policy Research, told Insider. “Many large retail outlets are complaining about an excess of inventory and the need to have big price markdowns.”
Even luxury brands are touting some rare deals
Luxury retailers typically cut prices less often than other sellers because their wealthy clientele is viewed as insulated from the tightening of the economy. That was clear this year when luxury outlets like Ralph Lauren and Nordstrom avoided the inflation hit that chains like Walmart and Target sustained.
But anecdotal evidence shows that even luxury products are getting marked down now. Despite an increase in the total dollar amount spent on luxury items, outlets like SSENSE are offering hundreds of dollars off sticker price. SSNENSE and Bloomingdales, for instance, are both selling designer sneakers from high-end brands like Comme des Garçons, for 50% off.
And even as demand for designer watches grows, sales are still reasonably easy to find: New Omega watches can be purchased for 20%, and one pre-owned luxury watch dealer is offering $300 off across the board.
—Will Feuer (@WillFOIA) July 7, 2022
How retailers ended up overbuying
Retailers are currently suffering from something called the “bullwhip effect,” which is a phenomenon where distorted demand for products causes supply-chain inefficiencies such as lengthy wait times and excess inventory.
This has happened after they panic-bought too much stock in the wake of supply chain fears over the last few months. That panic snagged supply lines and caused shortages, and now companies are stuck with the arriving products — an even bigger problem because consumer demand shifted.
And retail executives have directly linked the current glut of sales to their excess inventory. Last month, Target CEO Brian Cornell cited inflation, as well as “historic highs with inventory levels,” as he addressed dramatic markdowns on inventory. He called the current environment one “many of us haven’t seen before.”
Earlier in June, Target announced its goal to reduce inventory by offering discounts, as well as canceling existing orders from suppliers. Analysts believe that Target’s main discounts will be “largely discretionary items” such as televisions and appliances that consumers have avoided as inflation spiked over the past few months, Reuters reported in June.
Macy’s own CEO said this week that the prices of overstocked items would fall soon, if they haven’t already.
“Customers are about to get some amazing deals on products that were hot during the pandemic,” he told Time.
Carolyn Ng Cohen, a spokesperson for Macy’s, told Insider that the company was attempting to “minimize” markdowns as much as possible while evening out its inventory.
Walmart’s own recent, inventory-clearing discounts have been so steep that it didn’t hold a specific event to compete with Amazon Prime Day this year, which it traditionally does. In fact, markdowns have been so high at Walmart stores that investment bank Oppenheimer Holdings removed the company from its list of top picks for investors.
—~Alexandria~ “AstroPetty” (@DOPECHICKBEATS) July 2, 2022
At all budgets, it looks like some consumers are willing to venture out of the inflation burrow.
“Parents if you’re able to take advantage of this massive Target toy clearance sale I would,” one Twitter user said. “Pretty much wrapped up Christmas shopping in 1 day. $550 worth of stuff for $200.”