Black Friday’s bargains smell musty this year
Your Black Friday bargain is probably last spring’s leftover sweatpants. American retailers have too much stock of everything from toys to women’s casual tops. While the markdowns will be welcomed by many cashstrapped shoppers, the holiday deals show how companies battle to work through bloated inventory weighing on profit.
In 2021, supply chain snarls left stores scrambling to fill empty shelves. Black Friday deals were stuck in the Pacific. As orders made their way slowly from Asia in the early part of 2022, consumers started to rein in spending amid soaring inflation, buying only things they needed such as food and giving up splurges and impulse purchases. Suddenly, a dearth of exercise bikes and kitchen appliances turned into a glut that had to be discounted.
INVENTORY GROWTH
A simple analysis of the spread, or difference, between sales and inventory growth shows the mountain of unsold goods in the US shrank since the first quarter, but hasn’t vanished.
Macy’s has managed its inventory well throughout the year, but Kohl’s’ is more overstocked than it was in 2021.
Target’s inventory rose in the third quarter to about 50% above where it was in the third quarter three years ago. About a third of that growth reflected new items arriving early as supply-chain knots loosened.
At Walmart, inventories, though significantly reduced, remain elevated compared with prepandemic levels.
Retailers in the business of selling nonessentials are especially ripe for dramatic discounting this holiday season.
Analysts at UBS Group said Target was being particularly aggressive in promoting home furnishings, electronics and toys. CEO Brian Cornell said at last week’s earnings update that the group “faced an unexpected gross margin rate headwind from a higher-than-expected mix of promotional sales, as guests moved away from fullprice purchases’.’
This weekend will see record online discounts for categories including electronics and toys, according to Adobe Analytics.
Stacey Widlitz of SW Retail Advisors says the majority of the 60 chains she tracks across the US and Europe are more promotional than last year. In 2021, deals were mostly down from or similar to 2020, when they had already been reined in. This year, markdowns will be back at 2019 levels, she said.
Given the extent of excess inventory, combined with the shift away from pandemic purchases, the deals on offer this week will comprise current season stock as well as items that have been hanging around since the spring.
For instance, shoppers can find apparel basics at Target for as little as $3, or an air fryer convection oven for 70% off on Amazon, or a kids’ tablet reduced 46% at Walmart.
As Americans focus their spending on groceries and other essentials, they will need such bargains to consider buying a set of scented candles or new yoga pants.
The picture in Europe is more complex. Black Friday has become a fixture across the Atlantic over the past decade. But it’s probably the biggest act of self-harm in the history of retail, as all it does for most chains is pull forward sales that would have happened later at higher prices.
Money through the checkout may increase, but profits are sacrificed.
PwC expects UK consumers to spend £7.5bn this Black Friday, £500m more than in 2021. Even as Britons face higher energy prices, food inflation and rising mortgage rates, demand is so far holding up. But for European shoppers, who are also being squeezed by higher energy prices, the Ukraine war weighs on confidence.
RETAILERS
While many discounts appear to have been planned, for example, at electronics retailers Currys and AO World, which can work with their suppliers months in advance to offer eye-catching deals, others look more kneejerk. For example, Marks & Spencer, a bellwether for the British retail sector, is offering 20% off of all coats, jackets and boots. (Europe’s fairly warm autumn so far may be good for consumers’ heating bills, but it’s less helpful for sales of outerwear.)
On both asides of the Atlantic, there is a standoff between stores and shoppers. Consumers’ budgets are under pressure, and they know retailers have too much stock.
While October retail sales were resilient — no doubt helped by early Black Friday discounts at the start of November — companies including Target, Macy’s and Kohl’s saw a slowdown in spending later in October and into November.
Retailers must keep their heads, sticking as far as possible to planned promotions rather than offering deeper discounts to stimulate sales or offload unwanted stock. This will be the first holiday season in three years that economies will be fully open, bolstering gift and food buying.
Whether companies or consumers blink first will determine if this crucial trading period turns out to be a sequel to 2021’s revenge spending — or spring’s big-box bloodbath.
RETAILERS IN THE BUSINESS OF SELLING NONESSENTIALS ARE ESPECIALLY RIPE FOR DRAMATIC DISCOUNTING THIS HOLIDAY SEASON