The Lab | First Things First - Episode 5: Tomorrow's Importers Must Do Things Differently

First Things First: The Fastest Five Recap – June 2022 Edition

First Things First

The Fastest Five Recap - June Edition

June 15th, 2022   ·   By Callum Berry

We hope you enjoyed our June edition of First Things First, where Mercado Labs CEO and podcast host, Rob Garrison, spoke with industry veteran Debbie Ryan (Director, Procurement Distribution & Logistics at LogicSource) about her experience in the supply chain industry and what she would like to see change in the future.

Debbie was an incredible guest and gave us some really great insights into this huge and complex industry. If you haven’t seen it yet, you can catch up here.

As usual, Rob covered some of the hottest supply chain topics from recent weeks in his ‘Fastest Five’ segment, and we’re here to give you the detail.

Let's get started.

How much is too much?

The theme of this week's Fastest Five was “sitting on too much inventory”, something that has been troubling some of the biggest importers in the USA recently.

Huge retailers such as Macy’s, Walmart, and Gap are sitting on inventory that, put simply, they just can’t get rid of. Suzanne Kapner from the Wall Street Journal predicts that these companies are going to have to start increasing the amount of discounts they provide to get rid of stock, or send it to storage to sell at a more opportune time.

Having too much inventory when consumer demand is low is something that many companies dread, and evidently is problematic for companies large and small who must find ways to reduce their losses.

Rob’s perspective

Wow, that really is crazy! A 10-12% drop in demand overnight isn’t something any business leader wants to see. Economists are really struggling to predict what’s in store for businesses and our consumers from an inflation point of view—some view it as a near-term consequence of high government stimulus injection alongside shortages driving prices higher and making the cost of living more expensive; whilst others see it as something that’s been building for a long, long time. Whatever the case, we are all going to have to figure out and prepare for this added layer of complexity in an already struggling industry.

Target’s stock scramble

Moving forward in a similar vein, retail giant Target is slashing prices to clear out excess inventory and canceling orders from their suppliers and wholesalers, due to an increasing buildup of stock ahead of the critical fall and holiday shopping seasons.

The actions, announced on Tuesday, have come after a noticeable spending shift in the U.S, as consumers move from making investments in their home to spending more on experiences and leisure such as travel, restaurant eating, and other pre-pandemic activities.

Rob speculated that there may also be other factors that have led to these issues, with the main factor being that the price of inventory has gone up due to inflation.

Another reason could potentially be a decrease in spending due to an increase in the cost of non-discretionary items (groceries, etc.) This in particular caught a lot of retailers by surprise due to its quick progression. Many were told initially that the increase was a transitory phase, however we’re seeing those with previously high levels of disposable income having to spend a larger portion on such goods.

The fourth reason is more obvious: Less income. The majority of stimulus checks that the U.S government provided during the pandemic have now stopped, meaning that the average consumer has less disposable income to spend.

Finally, something that anyone working in the supply chain industry is familiar with: Unpredictability. The supply chain is infamous for being incredibly hard to predict, and always has been vulnerable to shocks such as port delays or factories being shut down (as we’ve seen recently in Shanghai).

Events like this can have a huge ripple effect further downstream, and trying to forecast these events is incredibly challenging, often meaning that inventory can end up arriving much earlier than anticipated.

It is expected that the fallout from these inventory issues will take at least another quarter to be corrected, which is a huge problem for the majority of these companies.

Rob’s perspective

Inflation often results in negative financial market movements—and recessions are natural consequences we’ve seen many times before in our recent history alone. Whether things balance out relatively quickly remains to be seen. It’s possible that as the cost of living increases, people buy less resulting in left demand and so price decreases—reflecting how a ‘bull market’ can just as easily turn into a ‘bear market’.

Catch-up on the live show

To watch the full episode of First Things First, head over here.
To subscribe to the podcast (available wherever you listen to yours), click here.
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