Inventory in Focus: How Macy’s Looks to Strike a Balance
By: James Flippin · October 06, 2022 · Reading Time: 3 minutes
Clothing retailers are familiar with the way changing seasons alter what is being sold in stores — out with the old, and in with the new. But for many companies, the timing can be a bit tricky, and that’s been especially true during the past 12 months, as the supply chain has encountered problems.
If products aren’t sold in time for the season change, they’re often packed up and stored in warehouses, with plans to resell them in the future. In the industry, this is known as “pack-and-hold.”
As the entire retail sector faces uncertainty amid inflation, and the expectation that higher prices could cut into consumer spending, balancing inventory is especially important. Research shows one company doing a decent job managing excess inventory is Macy’s (M). In its most recent quarter, Macy’s inventory was up 7% year-over-year, compared to jumps of 48% for Kohl’s (KSS), 44% for Nike (NKE), and 37% for Gap (GPS).
Checking Credit Cards
Macy’s executives say they’ve had success managing inventory levels thanks to time spent closely watching credit card data early this year. As shopping trends started to show cracks, the company cut back on some merchandise orders. The result is a limited need to “pack-and-hold” inventory ahead of next year.
It seems Macy’s could have benefited by being out in front of an unexpected trend. Many retail executives have expressed surprise by the shift in consumer spending this past summer, as people started to show a preference for travel and concerts over buying goods. All the while, inflation pushed prices on those goods higher, further depressing demand. After noticing this sort of trend, Macy’s pivoted and stocked up on things like dresses and shoes for weddings, rather than comfy couches and other items that were big sellers during the pandemic’s earlier stages.
How Stores Differ
As the calendar creeps toward the holiday shopping season, this game of musical chairs, which retailers must play with inventory, could mean sweet savings for consumers. Analysis from Citi (C) suggests Kohl’s and Nike may find themselves in a position of needing to unload excess inventory.
This can be illustrated through the gap between inventory and sales. As mentioned, Macy’s has done a good job striking a balance, and their gap between sales and inventory shrank in the second quarter. Conversely, Kohl’s gap widened. Nike’s reliance on ocean shipping to bring new goods from Asian factories also leaves them vulnerable. Because those ships were often delayed due to logistical challenges, in-transit inventory is up 85% year-over-year.
Even Macy’s admits their inventory management efforts haven’t been flawless. Executives are studying data and looking to enact steep price cuts on products that aren’t selling as fast. It all adds up to an interesting environment for consumers: inflation has prices spiking, but retailers are also busy offering up discounts.
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