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Consumer Demand for ‘Crap’ Is Dying, Bloating Retailer Inventories: Analysts

Neil Campbell
Neil lives in Canada and writes about society and politics.
Published: June 10, 2022
Demand destruction is being tasted by retailers that sell junk such as Target and Walmart, data shows.
A Target store staffer on Jan. 5, 2011 in Miami, Florida. Discretionary spending retailers such as Target bought too much stuff during the supply chain crisis, and now that demand destruction has hit due to inflation, the companies are in trouble. (Image: Joe Raedle/Getty Images)

Consumers are buying less and less “crap,” leaving leading U.S. retailers such as Walmart and Target — whose business model capitalizes on discretionary spending — with a big problem, found a leading transportation industry analysis firm. 

In a June 9 report by FreightWaves titled Why Everyone Is Freaking Out About Target’s Inventory, author Rachel Premack succinctly summarizes the quandary in the subhead: “Consumers are tired of buying so much stuff, much to the chagrin of retailers and transporters.”


Focusing on big box retailers such as Target, Best Buy, and Home Depot, she stated, “They stocked up too much this past year. Now they’re struggling with something called ‘inventory bloat.’ It is even more painful than regular bloating, I imagine, if you are a shareholder in a large retail firm.”

Premack quipped, “While we were buying more and more crap, seemingly without any regard for our dwindling savings, our favorite retailers were doing anything to get more product in.”

And added, “At some point this year, though, the thirst for buying stuff finally quenched…The retailers weren’t aware that we were all going to stop ravenously buying this quarter, apparently.”

“They quietly kept amassing their own inventories, many of which were still depleted from 2020 and 2021. And concern over another black swan after years of oddities – trade wars, the pandemic and so on – probably drove many transportation managers to keep ordering stuff. Just in case,” she posited.

In the numbers

The proof is in the numbers. Premack’s tabled data on Q1 year over year sales and inventory numbers compiled from earnings reports painted a nearly universal problem.

In terms of percentage change from Q1 2021 to Q1 2022, Amazon is holding 46.7 percent more inventory, while sales have only increased 7.58 percent. 

For Walmart, inventory is up 32 percent, but sales only increased slightly less than 4 percent.

For Best Buy, although inventory bloat was a more modest 9.39 percent, their sales are actually down 8 percent. 

And for Target, inventory is up a painful 43.12 percent. Painful because sales have lagged at meager a 3.98 percent increase. 

The trouble manifests in concrete ways. In May, Bloomberg reported that Amazon was looking to “sublet at least 10 million square feet of space and could vacate even more by ending leases with landlords.”

The article put the figure into perspective as “equivalent to about 12 of its largest fulfillment centers or about 5% of the square footage added during the pandemic.”

And for Target, just weeks after releasing its Q1 2022 results, on June 7 the retailer told investors it needed to “right-size its inventory for the balance of the year.”

The reality of these measures as encapsulated as “additional markdowns, removing excess inventory and canceling orders,” and in terms of concrete actions will involve “pricing actions” and reducing lead times and shipping distances in the supply chain, the missive said.

Giving a quick example, Premack illustrated “Gap is hawking $60 leggings for just $12. Target is selling televisions for 25% off and patio sets at a 52% markdown.”

In its Q1 results, Target told investors, “Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time.”

The company added that it had forecasted for Q2 an operating margin at 5.3 percent and had posted a Q1 operating income margin rate of 5.3 percent. 

In the June 7 advisory, Target slashed its operating income margin expectations for Q2 to a mere 2 percent. 

The company’s shares already took a heavy blow at the May 18 earnings call, falling from a close of $215.28 on May 17 to a low of $145.51 by the 24th. 

In a May 20 article also by FreightWaves, the outlet cited an analysis of government data conducted by Michigan State, which found that segments for “furniture, home furnishings and appliances, building materials and garden equipment,” in addition to a category of merch called “other general merchandise,” which encapsulates Target and Walmart’s business model, were all bloated with sales-to-inventory ratio levels not seen since at least 2017. 

One expert was paraphrased as stating that “As of November, inventory-to-sales ratios were at pre-COVID levels,” but had since “exploded upward.”

In her article, Premack explained the statistic succinctly, “We generally don’t like an inventories-to-sales ratio that’s too high – it indicates that people don’t have the cash to buy stuff. But if it’s too low, like it was through much of 2020 and 2021, it means that there isn’t any stuff to buy.”