Covid stockpile may end up in sale bin

Consumers may be the big winners if businesses with bulging warehouses are forced into fire sales of excess stock.

An industry report on inventory levels shows New Zealand manufacturers are holding more than twice the value of stock compared to pre-pandemic levels, and are making lower returns on sales.

Software company Unleashed used data from its inventory management system to track 1168 SMES, and chief executive Gareth Berry says it is clear efforts to overcome supply chain issues have created other problems.

The value of stock on hand had risen from $360,581 in the third quarter of 2019 to $776,580 for the third quarter this year.

‘‘Holding more inventory may be good for reducing shipping delays, but for businesses it means huge amounts of capital tied up in stock that they now can’t spend elsewhere.’’

Sectors worst affected were those dealing in sport and recreation gear, plastic and rubber products, electronics, chemicals, and building and construction.

Most firms had seen a drop in overall profitability, and manufacturers were also paying almost 10% more for their goods compared with the start of the year, Berry said. On the plus side, delivery times to customers from receipt of an order were back to prepandemic levels, about 91⁄ days.

Pressure could really come on manufacturers holding big stocks of products with a limited shelf life, such as food, and consumer goods, such as clothing or electronics that could become dated or out of fashion, Berry said.

With inflation and rising interest rates depressing consumer spending, businesses may well have to consider some serious discounting, which could begin with Black Friday sales and continue through the Christmas period.

‘‘The tipping point will come where they essentially need to do a fire sale to get rid of stock to free up cashflow, so they can afford to pay wages, utilities, etcetera.

‘‘There will be a point where prices come down in favour of consumers because businesses cannot afford to hold excessive amounts of stock for extended periods of time,’’ Berry said.

Although shipping times and costs had dropped, the damage had already been done, he said. ‘‘What started as a supply chain crisis appears to have evolved into an inventory crisis.’’

The situation in New Zealand was closer to the UK where the value of stock held had doubled, but a stark contrast to Australia where it had only risen 11.5%.

Berry said the jump in UK inventories ‘‘aligned perfectly with Brexit’’ as people importing from Europe were faced with more paperwork and red tape, and decided to buy in bulk.