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In-store discounts, oversales ahead due to increased retail inventory

By on June 29, 2022 0
Note: Data not adjusted for inflation;  Data: FactSet;  Graphic: Axios Visuals
Note: Data not adjusted for inflation; Data: FactSet; Graphic: Axios Visuals

After more than two years of recurring supply chain grunts, warehouses and store shelves across America are filling up with stuff — maybe too much.

The big picture: New government figures released on Tuesday showed wholesale and retail stocks continue to rise, even as consumers’ fierce appetite for things – toys, clothes, furniture, packaged goods – that has emerged as a feature of the pandemic economy could decline.

The context: A disappointing reading on retail sales a few weeks ago reinforced the view of some that soaring inflation is unnerving U.S. shoppers and could alter buying habits that have developed during the COVID crisis.

  • Recent earnings warnings from walmart and Targetas well as disappointing results from Amazonmade a similar point.
  • Retailers conceded to Wall Street that they may have misjudged the type of goods US households would want to buy as inflation weighed on their budgets.
  • Target, for example, said it ordered far too many TVs and appliances that it will have to put on sale.

Our thought bubble: This is yet another example of one of our favorite themes… “The stock market is not the economy”. Let’s just call it TSMINTE for short.

  • If you’re a Target shareholder, it’s a bit of a shame the company got it wrong and now has to put a bunch of stuff up for sale at lower prices. This means that your profit margins are likely to drop. (That’s why when Target mentioned this issue, its stock price fell the most in a single day since the stock market crash of 1987.)
  • But if you are a buyer: score. Maybe that massive flat screen you want is on sale. (Also, if you’re Federal Reserve Chairman Jerome Powell, whose job it is to bring inflation down to earth, it’s good to know that some prices are going to be cut.)
  • In other words, something that’s pretty bad for the stock market is actually pretty good for the economy. This is the very essence of TSMINTE!

Yes, but: Of course, there are limits to this kind of logic. If everyone is making huge inventory mistakes and building up massive stocks of products that there is no demand for, that could be a bad thing. Businesses could go bankrupt and people could lose their jobs.

The bottom line: But for now, soaring inventories, just when demand appears to be slowing, is exactly what the US economy needs to take a break from the inflation that is driving everyone crazy. And, you know, keep your eyes open for sales.