The Econoday parrot is squawking about tight inventory management again today. This follows commerce news that month-over-month wholesale trade inventories fell 0.2%. Let’s investigate.
Highlights
The nation’s inventories, thanks to tight management, are lean which may be a negative for current GDP growth but is unquestionably a positive for future growth and, more importantly, future employment growth. Wholesale inventories slipped 0.2 percent in August vs a preliminary decline of 0.1 percent and compared with a final decline in July which is also at 0.1 percent. August’s draw comes at the same time that sales at the wholesale rose very sharply, up 0.7 percent to pull down the stock-to-sales ratio to 1.33 from 1.34.
Inventory to Sales Ratio
My startling conclusion is that parrots cannot read charts.
2016 Inventory Crisis
For a more reasonable synopsis of what is happening with inventories, please consider the SupplyChain article The 2016 Inventory Crisis Continues.
Warehouse vacancy rates in many major cities sit below 5% and a glut of inventory is building up in across retailers in the US.
While volatile consumer demand in itself doesn’t explain the glut of inventory, a closer look into consumer behavior does. Thanks to companies like Amazon, today’s consumers have incredibly high standards when it comes to product availability, choice, and fulfillment. Out-of-stock inventory, in particular, is a killer of customer loyalty. Shoppers will easily switch to a different retailer, or even a different brand, if what they want is unavailable. Along the same lines, even if a product is available, if a store can’t deliver it quickly, painlessly, and likely for free, customers will stray.
The 2016 inventory crisis reflects a struggle. Retailers are grappling with the new innovations brought on by technology companies and the resultant changes to consumer expectations. And maybe taking some action is better than taking no action at all, but the consequences of taking the wrong action for a long period of time can be incredibly high as the current inventory glut and warehouse rates show.
These days, flexibility is best guaranteed through supply chain network technology. Nordstrom recently acquired a minority stake in DS Co., a cloud-based supply chain software firm. The motivation behind the purchase was to make direct shipments from vendors to customers much easier. Direct shipments are a clever way of reducing inventory burdens.
Retailers like Nordstrom wouldn’t need to carry inventory themselves, in expensive warehouses and distribution centers. Instead, when customers buy something from a retailer, they receive the goods directly from the vendor. The key to pulling this off is speed and accuracy. Delivery time, from the moment of purchase, has to be short in order to make up for the lack of instant gratification. And the details of the delivery – the right address, timing, packaging, return process – also have to be favorable to the consumer.
As 2016’s inventory crisis continues, it’ll be interesting to see how many retailers press on with higher rents and larger stocks, versus those who find clever ways to fulfill customer expectations while minimizing costs.
Econoday Parrot
- Inventory is tight
- Inventory positive for future growth
- More importantly, inventory positive for future employment growth
Supply Chain
- Warehouse vacancy rates in many major cities sit below 5%
- A glut of inventory is building up in across retailers in the US
- Retailers turning to direct shipments as a clever way of reducing inventory burdens
Do you believe economic forecasts by Parrots? I don’t.
Moreover, as retailers go to direct shipping, there is need for a huge amount of inventory adjustment on top of what any economic slowdown may require.
Mike “Mish” Shedlock
Sale time coming down the line.
Brick and morter stores are a thing of the past. Dirct shipment from manufacturer to customer used to be called “drop ship”. Middle man is cut out of the picture. We knew this was happening.
What makes any of these re-sellers think that Chinese manufacturers won’t eventually eliminate them as well? How will Amazon hold onto this market as delivery systems continue to improve? The Chinese can buy warehouses in America just as easily if not more so than Amazon. So many companies who used to be manufacturers have found higher profits in simply subbing the manufacturing out, but once they give up ownership of the means of production and are faced with China, which has no hesitancy in pursuing death match competitive trade actions, how will they hold their markets? We have given China the tools to do this, and have no compunction about buying imports even IF it costs us our jobs, given we have the promise of entitlements to sustain our buying habits.
We deserve what we get….probably worse.
As communication tools get more sophisticated, markets will take advantage of the new tools. Warehouses used to be somewhere you stored something until you needed it. Today warehouses are rapid distribution centers and as designed, nothing should stay in it any longer than a few hours. It’s gotten so efficient that maybe the only thing the competition can do is sabotage their competitor.
With new auto sales plateauing (rolling over?) the whole auto supply chain will back up with increased parts inventory … complicating the problem will be 4.5 million newish vehicles coming off lease in 2016 (per Edmunds) … even more coming off lease in 2017.
No matter how much Fiction POTUS Peddles retailers know j6p is broke … and come the Holidays best to get to his wallet before someone else does. Noticed a recent trend of past few years that THE best deals before Thanksgiving.
Last year bought on a very good sale a cheap Toshiba laptop during the week of Veteran’s Day. Tracked that laptop at Staples / Best Buy / Amazon weekly till the end of the year. The sales never touched the price I paid.
Last year the deals Fat Wallet highlighted for Black Friday weekend and cyber monday weren’t all that great.
Evidently more marketing hype is needed. Like the hype for Hurricane Matthew.
” Hurricane Matthew: Fleeing U.S. residents find empty shelves, lines for gas”
Now that’s what I call ‘inventory management’.
China will give their production away to keep their factories running and people off their streets in protest. Deflation, which in theory is supposed to be good for consumers, until they realize (too late) that these low prices are decimating their jobs. People are hanging on to the service sector for employment, but how long will that last as more and more products are cheaper to buy than fix? How long will it be before China is shipping prefab plastic houses here or simply the 3-d printer to extrude one out in a day. America will become a dump for cheap disposable goods that are cheaper to replace than pay someone to even decently dispose of them. As prices and jobs decline, the demand for cheaper and cheaper goods which will ONLY come from somewhere else….at least until the entitlement system breaks down and people become desperate to eat. Maybe then, but more likely just roving mobs of the entitled looking for “rich” people to redistribute from. Working is for suckers.
People standing around watching other people work is a large part of the economy. Government regulators for instance. Auditors, not just financial, good lord. Watch the wall of brokers you hit getting something across a border, better to carry it yourself. Pharma middlemen are huge, check out what the nice Epipen lady said that got lost in the railing against her. Cut out the middleman and half your economy may go poof.
You mean Heather Bresch?
In our fast pace world people have come to expect everything to happen rapidly. The truth is there is often a lag time between cause and effect. This means days, weeks, months, or even years may pass before we see how a certain event or policy has affected us.
The element of lag-time should not be discounted. This is particularly true when it comes to economic policy. It is easy to underestimate how complex the interaction playing out across global markets add to and skew even the best intentions of policy makers. The article below explores some of how failure to ignore this factor distorts our perception.
http://brucewilds.blogspot.com/2016/05/lag-time-effect-alive-and-well-in-our.html