Inventories at major US retailers such as Target and Walmart have significantly decreased, signalling their readiness to replenish their stock with new merchandise for the autumn season.
This positive development offers hope for freight carriers seeking a shipping rebound fuelled by revived restocking.
Scaling down inventories
At the end of the last quarter, Target reported a 16% reduction in inventories compared to the same period a year ago.
Walmart also made substantial cuts, reducing inventories in its US store operations by 9% over the past year. These measures allowed both retailers to remove hundreds of millions of dollars’ worth of goods from their balance sheets, hinting at improved supply chain conditions and increased space for new products.
Retailers emphasise restocking
Target chief operating officer John Mulligan stated during an earnings conference call that the overstocking challenges faced by the company in the previous year were now a thing of the past.
Target is now shifting its focus towards getting fresh merchandise into stores for the fall season.
Walmart’s chief executive Doug McMillon expressed optimism about their inventory situation, highlighting improvements in stock availability and the continuous reduction of excess inventory. These positive trends were evident in the numbers and confirmed by on-site visits to Walmart stores and Sam’s Club locations.
Merchandise inventories experience growth
According to Census Bureau figures, inventories at US general merchandise stores expanded by 1.2% in March. This growth followed a gradual decline over several months since reaching a record high in August of the previous year.
Retailers’ rush to replenish
Walmart and Target were among the many merchants who hastened to supply US distribution networks in early 2022. Some retailers even chartered their own ships to bypass port backlogs and ensure timely delivery to consumers.
Walmart faced significant challenges, with up to 100,000 shipping containers waiting for transport into their domestic supply chain due to port congestion.
Shift in consumer spending
During the Covid-19 pandemic, US consumers increased their purchases of goods while restrictions on various activities limited spending on services.
However, as restrictions were lifted, consumers swiftly shifted their focus back to services. Consequently, warehouses became overwhelmed with excess inventory. Retailers responded by reducing orders from overseas suppliers and gradually reducing their surplus stock.
The decline in container imports
Container imports into US West Coast ports, which serve as the primary gateways for trade with Asia and suppliers of consumer goods for American retailers, dropped nearly 23% in the first quarter compared to the previous year.
This decline was reported by Descartes Datamyne, a data analysis group owned by Descartes Systems Group, a supply-chain software company.
Positive signs amid uncertainty
CEO of logistics services company RXO Drew Wilkerson stated that retailers are currently in a much better position compared to the previous year. Retailers are gradually pushing more goods to distribution centres and stores, although uncertainties loom over the broader economy.
The crucial factor remains consumer demand, considering the prevailing macroeconomic conditions.
Hope for shipping
Industry Hapag-Lloyd, a German container line, reported a 33% plunge in revenue for the first quarter of this year, accompanied by a 4.9% drop in cargo volume.
However, the company noted an improvement in shipment trends toward the end of the quarter. CEO Rolf Habben Jansen cautioned against expecting an immediate recovery but emphasised the slow but steady end to the destocking phase, which could potentially lead to increased demand in the future.
Freight market’s outlook
JB Hunt Transport Services, a leading indicator for the US freight market, mentioned that its customers are discussing restocking plans. However, these discussions have yet to translate into higher shipping volumes.
JB Hunt Transport Services president of highway services Brad Hicks stated that although many customers believe their inventory issues have been largely resolved, there hasn’t been a significant increase in inbound flow to distribution centres.
Cautious retailers await clearer signs
Despite the positive developments, retailers remain cautious, awaiting stronger signals from consumers. US consumer spending experienced a 0.4% rise in April after two consecutive monthly declines.
Target executives emphasised their focus on “inventory efficiency” for this year’s restocking efforts, aiming to stock new, trendy items on shelves for the major seasonal selling periods.
CEO Brian Cornell expressed enthusiasm for upcoming events such as back-to-school and the holiday season, indicating retailers’ preparedness for increased demand.