It’s no exaggeration to say American retailers have been traumatized by the latest twists in the supply chain crisis. They are unsure of consumer demand and nervous that goods ordered from overseas will arrive on time, so they’re placing larger orders earlier in the buying season – and the results have not been good.
One sign of recent trouble was that large retailers like Target and Walmart reported they have too much inventory. To clear out merchandise, stores are being aggressive with discounts and promotions, which will cut into profits. A second sign is that retailers lengthened their planning process, ordering goods further in advance to make sure they arrive at U.S. ports in time for seasonal demand.
These two steps – ordering earlier and ordering too much – are connected. If retailers make buying decisions too far in advance, they have to increase guesswork about demand. It’s especially challenging to anticipate what will sell when consumers are changing their spending habits in real time due to rising inflation.
In an earnings call, Sonia Syngal, CEO of the Gap and Old Navy, said Old Navy had to lengthen its traditional 12-week pipeline of goods.
“Reverting to a longer inventory push model not only diluted economic value but meant we were defining customer trends too early in the process and we’re unable to chase into the right fashion choices closer in,” she said. “This resulted in excess inventory and less relevant styles that will pressure sales in the short-term while we rebalance the assortment going forward.”
The Wall Street Journal said J.C. Penney starts the design process for apparel three to eight weeks earlier in the cycle than before COVID in order to overcome supply chain hiccups. But in a world when stores need to chase fast-changing tastes, those extra weeks mattered.
“If the crystal ball had shown how much bigger dressy clothes were going to be, we would have pulled back more on casual clothes,” Michelle Wlazlo, Penney’s chief merchandising officer, told The Journal.
When will retail spending habits slip back into predictable, manageable patterns? Maybe never. The pandemic did more than disrupt American life, it changed daily schedules permanently for many people who now work remotely, and it shifted many consumer purchases to online. Businesses will have to adapt by becoming more nimble, even when their supply chains are slower.
Read the complete Issue 14 of ChainMail here.
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