Container shipping lines hope peak-season volumes will get a boost from customers’ need to replenish tight inventories.
Since the recession ended two years ago, most companies have kept stockpiles low. They’re uncertain of future demand and still have painful memories of 2008-09, when slack demand left them with shelves and warehouses full of goods they didn’t need or couldn’t sell at full price.
“The economy turned down, and everybody was caught flatfooted,” said Ben Hackett of the economic consulting firm Hackett Associates. In recent months, tight inventories have been the rule for most manufacturers, wholesalers and retailers.
“Inventories stayed tight during the Thanksgiving and Christmas sales season,” Hackett said. “I think what we’re seeing is that companies are managing their supply chains more effectively. They’ve learned to keep inventories low.”
Roy Armes, president and CEO of Cooper Tire & Rubber, said improved supply chain management has contributed to tight inventories. “A lot of our customers are managing their inventories much tighter now than what they have in the past,” he told analysts this month. “A lot of that has to do with the economy, some of it has to do with managing cash, and there’s a lot of it that has to do with the distribution network.”
Business inventories rose 0.3 percent in March, according to the most recent figures from the Commerce Department. At the end of the first quarter, businesses had enough inventory to last 1.27 months at the current sales pace.
The total business inventory-to-sales ratio peaked at 1.49 in January 2009 but has been in the narrow range of 1.26 to 1.29 since late 2010. The retail inventory-to-sales ratio peaked at 1.59 in late 2008 and early 2009, but during the last year has stayed between 1.32 and 1.34.
Companies’ stockpiles of goods and materials tend to rise when economic conditions are strong and companies anticipate higher sales. There’s often a lag, however, between turning points in the economic cycle and changes in inventory-to-sales ratios. The high inventory-to-sales ratios of late 2008 and early 2009 reflected the sharp drop in sales during the recession.
Managing inventory levels is an art as well as a science, and can be influenced by unforeseen developments and changes in a company’s strategic planning. Miscalculations can affect a company’s bottom line.
Retailer Kohl’s, No. 26 on this year’s JOC Top 100 Importers list, said its first quarter profit dropped 23 percent when it cut prices but didn’t have enough inventory on hot-selling items. “Our progress on sales has been hindered by not having enough inventory units in the stores,” CEO Kevin Mansell told analysts.
Kohl’s is rebuilding inventory and is optimistic about the back-to-school and fall seasons, Mansell said. “We well understand the changes we need to make to our merchandise assortment in terms of communicating our value,” he said.
An emerging trend in inventory management is the adoption by several large retailers of so-called omnichannel strategies that mesh store and online supply chains. It’s an effort to compete with online retailing giant Amazon.com, which has grabbed customers from traditional retailers.
Nordstrom was a pioneer in supplying online orders from stores as well as warehouses, and now supplies online orders from all of its 117 full-line stores. Other retailers, including Top 100 Importers such as Macy’s (No. 44) and Toys “R” Us (No. 33) also are embracing omnichannel supply chains.
Online sales for Macy’s jumped 33.7 percent in the first quarter and now account for 7 percent of the company’s sales. To adapt its supply chain to expanded online sales, Macy’s is equipping stores to dispatch online orders that a warehouse may not have in stock.
“We now have over 80 stores equipped to fulfill orders from other stores or from online demand, and by the holiday season, we’ll have over 290 store fulfillment locations,” Chief Financial Officer Karen Hoguet told analysts this month. Macy’s has more than 800 retail stores.
“We think the sales potential from this omnichannel approach is enormous,” Hoquet said. “In addition, over time, it should enable us to also improve the productivity of our inventory, as well as our store square footage. We have barely scratched the surface here, and we are very optimistic about the possibilities.”