Retailers Near Restocking as Inventory Paring Winds Down

Date: Monday, May 22, 2023
Source: Wall Street Journal

Big retailers are signaling they are nearly done paring back their excess inventories and are preparing to fill their shelves with new merchandise this fall, potentially brightening prospects for freight carriers looking for revived restocking to drive a shipping rebound.

Target’s inventories at the end of the last quarter were 16% lower than the same period a year ago and Walmart cut inventories in its U.S. store operations by 9% over the past year, slashing hundreds of millions of dollars of goods from their balance sheets and suggesting space is opening up in their jammed supply chains.

Target Chief Operating Officer John Mulligan said on an earnings conference call Wednesday that the overstocking that weighed on the company last year was “in the rearview mirror” and that the retailer was turning toward getting fresh merchandise into stores for the fall.

“In terms of inventory, we’re in good shape,” Walmart Chief Executive Doug McMillon said on a Thursday earnings conference call. “In-stock is improving, and excess inventory keeps coming down. We see it in the numbers, and I’m seeing it on store and [Sam’s Club] visits.”

Inventories at U.S. general merchandise stores expanded 1.2% in March, according to Census Bureau figures, after pulling back over several months from a record high last August.

Walmart and Target were among scores of merchants that rushed goods into U.S. distribution networks in early 2022, with some even chartering their own ships to get around port backups and get goods to consumers. McMillon said at one point last year Walmart had 100,000 shipping containers backed up at ports, waiting for transport into the retailer’s domestic supply chain.

U.S. consumers had boosted their purchases of goods during the Covid-19 pandemic as restrictions on many activities limited services spending. But a sharp pivot back toward services began last spring as those restrictions ended, leaving merchants’ warehouses overstuffed, and retailers pulled back on orders from overseas suppliers while they burned off excess inventory.

Container imports into U.S. West Coast ports, the main gateways for trade with Asia and the array of suppliers producing consumer goods for American retailers, declined nearly 23% in the first quarter from a year earlier, according to Descartes Datamyne, a data analysis group owned by supply-chain software company Descartes Systems Group.

Drew Wilkerson, CEO of Charlotte, N.C.-based logistics services company RXO, said the company’s customers that were focused at the start of the year on destocking are starting to push more goods to distribution centers and stores even as uncertainty hangs over the broader economy.

“We’re seeing that the retailers are in a much better position than they were a year ago,” Wilkerson said. “Now the question is around the consumer. With everything going on with the macro economy, we still have to make sure the demand is there from the consumer.”

German container line Hapag-Lloyd said this month that its first-quarter revenue plunged 33%, to just over $6 billion, on a 4.9% drop in cargo volume. But the world’s fifth-largest container carrier by capacity said shipment trends picked up toward the end of the quarter.

“I don’t think that means that we’re now going to see a very quick recovery,” CEO Rolf Habben Jansen said on a May 12 earnings conference call. “But I do think that underlines the point that destocking is slowly but steadily coming to an end, and at some point in time we quite likely will see a bit of pickup in demand.”

Lowell, Ark.-based J.B. Hunt Transport Services, a bellwether for the U.S. freight market, said its customers are talking about restocking but so far haven’t turned that into bigger shipping volumes.

“Many of them are reporting or sharing with us that they feel like, by and large, their inventory issues are or have been mostly corrected. But we’re not yet seeing that inbound flow” increase into distribution centers, Brad Hicks, the carrier’s president of highway services, told a BofA Securities conference Thursday.

Still, retailers so far remain cautious without clearer signs from shoppers. U.S. consumer spending rose 0.4% in April after two straight monthly declines.

Target executives said their restocking efforts this year would focus on “inventory efficiency,” with a goal of getting new, on-trend items on shelves for the major seasonal selling periods.

“As we sit here, today we’re excited about back-to-school and back-to-college,” Target CEO Brian Cornell said on the earnings call. “We’ve got great plans for the holiday season.”

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