Here’s where inventory shortages are and where retailers are overstocking, by retailer category

It’s always supply chain chaos for retailers, but different retailers face different kinds of chaos.

By Wolf Richter for WOLF STREET.

There are now stories of retailers suddenly being “overstocked” and shortages turning into gluts, and suddenly people are already seeing that supply chains have been miraculously repaired or whatever. But overall inventories at retailers remain very low, and at the largest category of retailers – car dealerships – inventories are desperately low, and they are low in other categories of retailers, but general merchandise retailers, such than Walmart and Target, are suddenly inundated with certain types of merchandise.

What happened at these general merchandise retailers, and a few others, was that the eternally long delivery times, hiccups and chaos delayed the goods, and when they finally arrived, consumers had moved on to something else. And these retailers no longer had products that consumers had passed on and were overloaded with products that no longer interested them.

Overall retailer inventories, in terms of months of supply, are still near historic lows.

Having the wrong inventory on hand is a classic problem for retailers. To minimize this risk, retailers have shortened their supply chains and are postponing major product decisions until the last moment. And then the pandemic hit, and that solution became a huge problem, and retailers had to adapt on the fly. And some retailer categories have been caught off guard and are overstocked, while many other retailer categories have very tight inventory or shortages, including the largest retailer category – car dealerships – which are still in sold out. The overall inventory-to-sales ratio – or months of supply – at retailers improved only slightly to 1.18 months of supply:

Dollar inventories = raging cost inflation, not rising inventories.

Goods inflation – that is, what retailers sell – has been well above the headline CPI. For example, wholesale prices for used vehicles, which become the cost of inventory for dealers, jumped 35% to 45% year-over-year between October last year and February this year. These cost increases have inflated dollar inventories, although used vehicle inventories in terms of vehicles remain tight and have actually declined over the past three months.

What matters: months of supply.

To rule out the impact of skyrocketing costs of goods and to get an idea of ​​actual inventory levels relative to sales, we look at the “inventory-to-sales ratio”, which is a classic industry measure that shows how much months it takes to sell the inventory available at the end of the month at the current rate of sales.

Last week, the Census Bureau released retail inventory data through April. The end of April is also the end of the fiscal first quarter for most retailers, including Walmart and Target.

We’ll look at it by retailer category, because those are big differences.

At car dealerships, the largest category of retailers, which normally accounts for more than 35% of total retail inventory, inventory remains desperately low at 1.28 months supply, compared to around 2.2-2.4 months supply before the pandemic. And they hardly made any progress:

Auto dealers are now grappling with another problem: Pickup trucks and large SUVs were all the rage in 2020 and 2021 and earlier in 2022, and no one had them in stock due to semiconductor shortages. Automakers have prioritized the production of these vehicles because they are much more expensive and cost effective than smaller vehicles, and if they can only build a limited number of vehicles due to semiconductor shortages, they will build the most expensive and profitable ones to maximize their revenue and profit – which they did.

Then gas prices started skyrocketing earlier this year, and suddenly consumers were looking for more fuel-efficient cars and compact SUVs and hybrids, and now dealerships have more of them, they’re just about nearly all out of stock, while vans are starting to pile up at some brands. But overall inventories of new vehicles remain desperately low.

The number of new vehicles at dealerships, according to data from Cox Automotive, plunged 70% from 2019, to just 1.13 million vehicles at the end of May. Many models, especially the now more economical vehicles, have all but disappeared from inventory.

The number of used vehicles at dealerships, at 2.47 million vehicles is tight and below pre-pandemic levels, but supply is sufficient for the currently weaker sale rates, which are contained by a partial buyer strike against these sky-high prices:

In food and beverage stores, supply is almost back to pre-pandemic levels at 0.78 months, which is a good thing:

At building and gardening material retailerssupply has now returned to the upper end of the normal pre-pandemic range, at 1.87 months, as in April and May 2019:

In clothing and accessories stores, inventory improved from last year’s desperate levels. The current supply of 2.12 months is around 13% lower than it was during the same period in 2019:

In general merchandise stores, which accounts for about 12% of total retail inventory and includes Walmart and Target, inventory rose sharply as their merchandise finally arrived. Meanwhile, consumers shifted their spending to services like travel, dentists and entertainment events, as well as items that those stores were suddenly running out of. the good thing. The 1.58 month supply was the highest since 2007:

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