American Stores Have Too Much of the Wrong Stuff

Chains such as Walmart, Kohl’s and Target are stuck with goods and apparel customers wanted months ago.

By guest author Jinjoo Lee from the Wall Street Journal

Consumers, rejoice. This could be the year of clearances and deals.

Retailers reporting earnings this week have seen a surge of inventory as they found themselves carrying too much stuff that consumers no longer want so much of, including basic apparel, home appliances and furniture.

Ahead of last holiday season, retailers ordered with plenty of cushion in mind to prevent empty shelves. Now a so-called bullwhip effect could be in store.

The latest indication was from Kohl’s, KSS which reported Thursday that inventory rose 40% in the quarter ended April 30 compared with a year earlier. A third of that USD 1 billion increase was a planned stock-up of cosmetics for new Sephora stores inside Kohl’s, a fifth is in-transit merchandise as the company accounts for longer lead times in the supply chain and roughly 8 % are Christmas wares that arrived late. Even after accounting for those, though, it still leaves Kohl’s with about 16.5  when the company expects overall revenue to stay flat or up 1 %. Walmart WMT  and Target, which reported earnings earlier this week, saw inventory swell by 32 % and 43 % in the latest quarter, respectively.

Off-price retailers Burlington and Ross Stores ROST -22.20 % indicated that they saw closeout inventory start to skyrocket in late February and early March, said Michael Binetti, equity analyst at Credit Suisse, who hosted recent meetings with both companies.

There are broadly two shifts going on that threw a wrench to retailers’ inventory planning. One is a shift from discretionary to essentials, which both Walmart and Target saw. And within discretionary spending, consumers are still spending, but getting pickier with their dollars. Kohl’s, Target and TJX Cos. all said sales in the home category declined last quarter, for example (Kohl’s posted a 17% drop.)

Spending instead is shifting to what shoppers need as they go back to the office, attend concerts and travel again such as dressier apparel, makeup and luggage. Both Target and Walmart hinted at a more promotional selling environment, which will likely lead retailers’ stretched margins to contract.


All in all, it isn’t an entirely surprising or alarming picture of consumer health—at least not yet—but low-income consumers clearly are feeling the pinch from inflation, which outpaced wage growth for five consecutive months.

Walmart, for example, said some consumers are switching from gallons of milk to half gallons. They also are switching away from name brands to private label on categories such as deli and lunch meat.

Michelle Gass, chief executive officer of Kohl’s, said during the company’s earnings call Thursday morning that there is a bifurcation in consumer behavior, with some customers trading up to premium brands such as Calvin Klein and Levi’s and others trading down to private-label brands. The department store saw shoppers buy fewer units per visit.

Retailers with slower inventory turns—such as department stores and apparel sellers—might find current conditions especially difficult to navigate. On average, Macy’s M -8.21% and Kohl’s sold and replaced inventory 3.88 times and 4.34 times, respectively, last fiscal year. By contrast, Walmart, Target and off-price retailer TJX all turn over inventory more than six times a year.

Retailers were on a major sugar high last year when everything—supply chain delays, low inventory, homebound customers and stimulus checks—seemingly conspired to feed their bottom lines. A comedown was inevitable, but not one so brutal or swift.

Appeared in the May 20, 2022, print edition as ‘Stores Have an Inventory Problem.’