America may be on the cusp of an inventory problem. Research from the Wall Street Journal says the compounding excess of apparel and other stock is filling up US warehouses faster than goods are being sold.
As supply chains continue to hinder deliveries, companies are stockpiling to avoid the perils of shipping bottlenecks, which has seen soaring demand for warehousing and storage space.
According to Supply Chain Brain, leading logistics real estate company Prologis says it “expects another 800 million square feet of warehouse space to be needed beyond earlier projections to handle the bloated inventories.” With supremely low 2,9 percent vacancy rates in warehousing, there is a lack of space to accommodate inventory.
Earlier this year retailers and pureplayers selling apparel looked to expand their warehouse space by 10-15 percent, according to the Economic Times, due to a surge in demand and expansion of quick ecommerce services.
Excess inventory and the bottom line
Overstock is now not only hampering the supply chain and warehousing, but also spooking investors. America’s retail behemoths Walmart, Target and Amazon, all sat on too much stock last year, often referred to as bloated inventory. Spooked by trade wars, supply chain disruption, a fuel crisis and a pandemic, the companies exponentially increased their buys in the first quarter but failed to make the same increases in sales.
Amazon’s shares are down 37,5 percent in 2022. Target’s profit fell 43 percent in the first quarter of 2022 resulting in the company reducing its annual outlook. Walmart’s stock suffered its largest single-day decline in over 35 years, after reporting first-quarter fiscal 2023 results in May.
The numbers are speaking for themselves.
Other chains, like Gap and American Eagle Outfitters are suffering similar inventory bloatings where a glut of overstock apparel from categories such as workout clothes, spring jackets and hoodies are filling up warehouses, says CNN. The high cost of storage is hampering the bottom line.
The product bloat is so big that companies are considering a “keep the return” return when customers request refunds. Refunding shoppers while simultaneously letting them keep the item may be less expensive than processing a return, which often has to be shipped to a warehouse and subsequently stores. And these warehouses are currently at capacity.