By: Sunnie Gao
After a two-year surge in consumer spending — fueled by government checks and the ease of e-commerce — a nasty hangover is taking hold.
With consumers cutting down on purchases because of high inflation, retailers are now stuck with excess inventory. While overall spending rebounded last month, some major retailers say shoppers are buying less clothing, gardening equipment, and electronics and focusing instead on necessities like food and gas.
Plus, adding to those excess items is everything that people bought online during the pandemic and decided to return. In 2021, shoppers returned an average of 16.6 percent of their purchases, up from 10.6 percent in 2020 and more than double the rate in 2019, according to an analysis by the National Retail Federation and Appriss Retail.
In fact, last year’s returns totaled around $761 billion in lost sales, which is more than the annual budget for the U.S. Department of Defense!
As more and more items pile up, it is becoming clear that retailers have misjudged supply and demand. Part of their miscalculation may have been caused by supply chain delays, which prompted companies to secure products far in advance.
“It is surprising to me on some level that we saw all that surge of buying activity, and we weren’t collectively able to see that it was going to end at some point,” J.D. Daunt, chief commercial officer at Liquidity Services, said in an interview at the Pennsylvania warehouse earlier this month.
Large consumer spending may have prevented the economy from crashing during the pandemic, but it has also led to a huge amount of excess inventory.
Retailers have begun to lower prices on inventory in their stores and online. However, many companies cannot afford to keep discounted items on their shelves for too long, as they need to make room for new seasonal goods and the things that consumers now prefer. So companies are selling items to liquidators at a steep discount. Liquidators collect surplus and returned goods from retailers and resell them.
Additionally, industry executives say the surplus is so large that some retailers could run out of space to house it all.
“It’s unprecedented,” said Chuck Johnston, a former Walmart executive, who is now chief strategy officer at goTRG, a firm that helps retailers manage returns. “I have never seen the pressure in terms of excess inventory as I am seeing right now.”
Some of the returns and excess inventory will be donated to charities or returned to the manufacturers. Others will get recycled, buried in landfills, or incinerated to generate electricity.