A Very Wrong Inventory for the Retail Sector

This could be the year of clearances and$$ deals. Retailers have seen a surge of inventory as they found themselves carrying too much stuff that consumers no longer want so much$$ of$,$ including basic$$ apparel, home appliances and furniture.

Part $2$

Ahead of last holiday$$ season, retailers ordered with plenty of cushion in mind to prevent empty shelves. The latest indication$$ was from Kohl's which reported that inventory rose$40\%$ compared with a year earlier. Walmart and Target saw inventory swell by$32\%$ and$43\%.$ Off$-$price retailers Burlington and Ross Stores indicated that they also saw closeout inventory start to skyrocket.

Part $3$

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 have declined.

Part $4$

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. This$$ isn't an entirely surprising or alarming picture of consumer$$ health, but$$ low$-$income consumers clearly are feeling the pinch from$$ inflation, which outpaced wage growth for $5$ 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.

Part $5$

Retailers with $$slower inventory turnslong dash$$such as department stores and apparel sellerslong dash$$might find current conditions especially difficult to navigate. On$$ average, Macy's and$$ Kohl's sold and replaced inventory $3\mathrm{.}88$ times and $4\mathrm{.}34$ times, respectively, last year. By$$ contrast, Walmart,$$ Target, and$$ off$-$price retailer TJX all turn over inventory more than $6$ times a year.

Part $6$

Retailers were on a high last year when everythinglong dash$$supply chain$$ delays, low$$ inventory, homebound$$ customers, and stimulus checkslong dash$$conspired to feed their bottom lines. A comedown was inevitable.

$$Source: The Wall Street Journal$($October $5,2022).$

Part $7$

Critical Thinking Questions

$1.$ In the basic EOQ model shown$$ below, which variable did the retail sector get very$$ wrong?

$$Q$*$equals StartRoot StartFraction $2$ DS Over Upper H EndFraction EndRoot$=$

$2$DS

H

A$.$

H

B$.$

S

C$.$

D

D$.$

square root$($as it is not relevant in the retail$$ sector$)$