With Thanksgiving and Christmas on the horizon to close out 2022, shippers of all industries face the challenge of mitigating the surplus of inventory that the last 2 years have wrought. Warehouses across the nation are crowded with an overabundance of static inventory, which is exacerbated by changes in consumer spending habits and overall demand due to inflation. This surplus in goods wasting away in warehouses is known as inventory bloat. Shippers have been handcuffed to either keep the inventory in hopes of a return to normal demand and eat the inventory and warehousing expenses, or they can attempt to move the inventory by heavily discounting the price in order to get rid of product and opt to alleviate the aforementioned inventory and warehousing expenses as much as possible. The option to maintain faith and continue to eat inventory expenses is a tremendous gamble, relying on the demand to catch back up before the expenses bury profit. What most shippers opt to do is the much lower risk option of mass discounts in an effort to clear inventory. What is commonplace in this practice is that as time goes on, the desire to clear house of these products increases. When a company has 1,000 units of a product they need to sell, they may start at a discount of 10%. However, after a month of unspectacular sales, that discounted rate climbs to 20%, and this trend will continue until the product is no longer taking warehouse space. This is a conservative estimate when applying the principal to the industry and market of today.
Even last year, the National Retail Federation estimated $760 billion in lost sales due to the necessary utilization of heavy discounts. Not only is there more physical surplus inventory for the average shipper, there are more shippers than ever experiencing the inventory bloat. This is especially true of shippers offering lower cost goods, of which they have a large supply. Industries like retail are the most affected by what is referred to as the bullwhip effect, where the consequences of diminished demand cause a stockpile of inventory. Retailers like Walmart and Target are prime examples of inventory bloat as inventory has increased over 30% since the start of summer, adding to already inflated inventory levels at the time. With the holiday season looming- the biggest period of retail profit- companies are looking to rid warehouses of this surplus. Seeing that many shippers face a similar challenge, the risk inferred from sitting on inventory is bigger than it has ever been. Industry experts anticipate that Q4 of 2022 will see massive discounts and markdowns in an effort to clear inventory expenses and squeeze any remaining profit out of products that have been a financial liability. While it seems like the market has twisted the arms of shippers into plummeting prices en masse, experts warn that excessive discounts will cause another corresponding bullwhip effect, which will in turn breed another bullwhip, and so on until a legitimate pricing solution is reached.