While the nation’s retailers gather in New York City this week to attend the National Retail Federation’s 2019 Annual Conference, the Supply Chain Matters blog declares that inventory management will be one of the key competencies for retailers this year.
This week, the nation’s retailers have gathered in New York City to attend the National Retail Federation’s 2019 Annual Conference.
After a relatively robust year for retailing, including double-digit increases in U.S. online sales activities during the holiday fulfillment period that spanned the November and December period, the mood is upbeat. Retailers who invested in augmenting online customer fulfillment, supply chain management and decision-making capabilities likely reaped the benefits of such investments. Overall, there did not appear to be major glitches on the fulfillment side. The verdict comes when all retailers report their financial performance for the holiday quarter. Thus far, Target’s performance has been well received while Macys, not so.
As the new year begins, retail industry supply chain management teams have not really had the time to wind done because of two ongoing operational needs. The first is the vast amount of customer product returns that are being dispositioned, credited or returned to available inventory status. The other is a unique inventory management overhang challenge involving the pre-ordering of holiday focused inventories, and an ongoing nationwide shortage of available warehousing space.
As Supply Chain Matters and others in industry media have observed, many U.S. retailers elected to pre-order or bulk-up on holiday sales inventory to avoid the imposition of new import tariffs that went into effect at the beginning of 2019.
Retailers exercising smart inventory and profitability management, likely had the opportunity to sell much of that inventory with positive margins. Those retailers who misjudged customer demand, or who might have pre-ordered too much inventory, have a unique inventory management challenge in the coming months.
In late December, The Wall Street Journal reported that the surge of pre-ordered inventory caused many businesses to lease idle truck trailers to store the inventory surge. Transportation equipment lessors offered mobile warehousing and storage services to accommodate retailer needs.
Commercial real estate firm CBRE recently indicated that warehouses are as full as they ever have been. According to CBRE data, only 7 percent of available industrial space was available for lease in the Q4, the lowest point since the year 2000. Further indicated was that existing demand is exceeding supply by roughly 6 million square feet.
Normally at this point in-time, retailers would be consolidating available left-over inventory into existing warehouses, particularly inventory that may be stored in temporary trailers. With the Luna New Year holiday occurring on February 5th, China and other Asia factories will not be shipping any new product until later in February, if at all. Thus, retailers will likely have to manage and house existing inventories through the first quarter.
With no current resolution of ongoing trade and tariff talks among U.S. and China trade negotiators, procurement teams have difficult decisions to make regarding Spring and Summer related inventory purchases. Higher interest rates, more expensive warehouse leasing rates, coupled with limited or temporary mobile storage space preclude ordering any excess inventory. Similarly, retailers will likely await clearer indications regarding import tariffs on merchandise, particularly if added tariffs on broader items occur.
The bottom line is that smarter inventory and retailer profitability management will remain very crucial competencies in 2019. Retail sales and operations and integrated business planning teams will have to engage in close collaboration, analytical analysis and what-if scenarios to make appropriate inventory management decisions over the coming weeks. Those retailers lacking in such competencies will likely struggle in making decisions that have a positive impact on overall financial and customer service performance.
As for any former retail store real estate that may become available from store closing decisions, do not be surprised if some of these properties turn into added customer fulfillment centers.
Supply Chain Matters will feature additional retail industry supply chain management coverage later this week and next week, as various retailers report on financial and operational performance.
© Copyright 2019, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.