High Inventories Likely Past Peak, But Levels Remain Elevated

Inventories stayed high in the holiday months of November and December, but they are likely past a peak as more big retailers moved products at markdowns, according to WarehouseQuote’s latest Warehouse Pricing Index report.

In the report, the logistics company found that retail inventories receded 1.4% from its August peak in the fourth quarter of 2022. Even still, retail inventories remain elevated, up 17% in the 12-month period between October 2021 to October 2022, the report noted.

As a result, inventory builds have dropped, “but we still have a ways to go before reaching ‘normal’ inventory levels,” WarehouseQuote said in the report.

Gary Raines, chief economist at Footwear Distributors and Retailers of America (FDRA) agreed with this notion. In an email to FN, Raines stated that retail inventories appear to have peaked in August and have declined each of the last few months. “While all retail sub-sectors saw inventories balloon over the last 12 to 30 months, most are now seeing inventories start to ebb—albeit from record levels,” he said. “Exceptions are inventories at motor vehicle and parts dealers at a 31-month high, and home improvement store and grocery store inventories at record highs.”

In footwear, Nike declared in December that it had passed its inventory peak as it reported better-than-expected results for the second quarter.

“We believe the inventory peak is behind us as actions we’re taking in the marketplace are working,” Nike Inc. CEO and president John Donahoe said in a call with analysts last month, referring to the mounds of excess product that had built up at the company in recent quarters due to inflation-stricken consumers and rapidly shifting tastes in the marketplace.

In the first half of the fiscal year, Nike took actions to help liquidate inventory, especially in North America, via markdowns and promotions. The brand also reduced its orders for the second half of the year, cutting orders in areas with significant product excesses.

Walmart also mentioned inventory level improvements citing grocery market share gains and strong digital sales growth in its third quarter earnings call in November. Walmart president and CEO Doug McMillion said on the call that the company has “significantly improved” its inventory position in the third quarter after several quarters of excess merchandise levels resulting in billions of orders being canceled in Q2.

President and CEO of Walmart U.S. John Furner told investors that most of the excess inventory that was stuck in the supply chain is now in stores and the company is working on moving through the product.

This warehouse inventory report comes as the U.S. Bureau of Labor Statistics released its latest Consumer Price Index for December. Consumer prices rose by 6.5% in December compared to last year, the Bureau reported. This marks the smallest 12-month increase since the period ending in October 2021 and a slowdown from November’s 7.1% and October’s 7.7% year-over-year growth. Compared to November 2022, prices in December were down 0.1%.

Footwear retail price increases also slowed in December, and were up 0.8% compared to last December, the slowest growth in 21 months. Compared to last year, men’s footwear was up 0.5%, women’s increased 0.1% and kid’s rose 2.9%.

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