Most retail sectors seem to have right-sized their inventories after recent gyrations triggered by the pandemic and ensuing economic see-saw conditions, according to statistics tracked by the Bank of America.
The return to historical inventory levels follows a bumpy road for retailers, starting when the initial pandemic lockdowns of 2020, along with fiscal stimulus, turbo-boosted the demand for consumer goods to a level that retailers were hard-pressed to meet, Bank of America said in a report issued today, “Taking stock of retail inventories.”
By April 2021, the total inventory-to-sales ratio at U.S. retailers dropped to just 1.1 compared with the 2018-19 average of 1.46, the report said. Then subsequent orders placed by retailers to manufacturers to meet demand and restock gummed-up the global supply chain, leading to long shipping delays and escalating freight costs.
Gradually, as supply chain issues eased, orders were met, and inventories climbed during 2022. But as we moved into 2023, retailers had a new problem on their hands; they were carrying too much stock, some of which was now out of season, just as consumers in 2023 pivoted away strongly from goods and towards services, such as travel, restaurants, and live events.
However, over 2023, it appears that outside of motor vehicle sales and parts, most retailers made solid progress in “right-sizing” their inventory positions, with relatively little change in the inventory/sales ratio between November 2022 and November 2023, Bank of America said.
Researchers at the bank confirmed that analysis through a new scale, which measures retail inventory by using corporate payments to shipping and transportation companies as a proxy for inventory orders. By that yardstick, there was a dramatic increase starting in late 2021 that persisted throughout 2022. But in 2023, the story was one of more moderation, which lasted to December 2023 with a fairly consistent pattern of payments throughout the year. That pattern suggests that retailers' flat ordering behavior suggests they are content with their stock levels, according to Bank of America researchers.
