In our four-part blog series, RSM’s senior industry analysts explore back-to-school shopping trends and the impact on consumer businesses. This week we focus on how retailers are leveraging discount strategies.
During the COVID-19 pandemic retailers and wholesalers faced supply chain disruptions and high demand for goods. This caused continual back orders and lost sales due to lack of stock. Companies reacted by increasing production orders and addressing supply chain challenges.
Since November 2021, retail inventory has been spiking, well over pre-pandemic levels. Wholesale inventory is now over 20% higher than pre-pandemic levels, according to the U.S. Census Bureau.
Inventory is filling shelves, warehouses and overstock facilities. Retailers are having issues with receiving, and at times have been forced to return inventory to suppliers due to lack of space. Inventory levels are compounded by lower than forecasted consumer demand that spiked during the pandemic.
The discount strategy
To address the inventory surplus, back-to-school shoppers can expect the return of the discount as companies flush excess inventory. For the past few years discounts were uncommon due to limited supply and high demand. Now retailers will likely rely on this strategy, however, margins are already hit by high transportation and labor costs. Profitability will continue to shrink for some companies needing to lower prices to stimulate demand.
And while companies may have surplus inventory, they might not necessarily have the right inventory. Delays in the supply chain on some products and shifting consumer preferences on scarce items will likely continue to be a concern for companies. Shoppers may face challenges in finding back-to-school specific items like clothing and backpacks that tend to be high demand items.
To address inventory challenges:
- Companies should focus on business analytic tools and forecasting methods to project inventory demand. Including market volatility and macroeconomic shifts in demand will be key to accurate demand planning.
- Building consumer brand value and loyalty will be important to maintaining margin. Companies focused on customer experience will be better positioned to maintain margins.
- Companies with robust consumer data will be able to predict changes in demand more accurately. Focusing on digital transformation to improve the collection and visualization of customer data is key to future inventory decisions.