Retailers Who Over-Ordered Due to COVID Are Now Facing an Overstock Problem

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Given how long we waited for shelves to get re-stocked, the consumers never expected to see a “bullwhip effect” show up in our very own economy.

This effect is when shelves sit bare for a while so there becomes a backlog of orders. Suddenly, when shelves become filled, the warehouses find themselves lacking enough demand to keep up with the new supply that keeps streaming in. Panic orders to try and re-stock shelves were a big concern, but that downturn in need because the fad passed, people found a better company to supply the product, or they simply cannot afford it with this inflation have all combined to make some very full warehouses.

In the largest distribution market in the U.S., goods lay in wait for places to go. In the “Inland Empire” east of Los Angeles, CA, this bullwhip effect is in full effect for the warehouses.

All in all, this massive space stretching from East LA to near the Nevada/Arizona border has 1.6 billion sq ft in storage space at warehouses in Riverside and San Bernadino anchoring this industrial corridor. Visible from space, it is nearly 44 times larger than New York City’s Central Park and 160 times bigger than Tesla Inc’s (TSLA.O) new Gigafactory in Texas.

Now with the demand downturn, companies are forced to choose between paying to store merchandise or trying to sell it immediately and taking a small loss in profits. Either way, some money won’t be made off products they expected to sell very quickly. The American people can be very fickle about their goods, and often if it isn’t the newest, they are more than happy to pass it up for the latest and greatest edition.

Spending remains at pre-pandemic levels, and retailers are starting to sound the alarms.

Especially in the clothing market, where designs in last season’s catalog are no longer in demand, but retailers still have them pouring in. With many consumers trying to find new ways to balance their budgets as the economy slows down, purchases like the latest clothing take a backseat to other parts of the most inflated economy in 40 years.

Companies like Walmart, Best Buy, and Target are seeing some of the worst backlog of goods in recent memory. All three retailers blame a lack of discretionary spending by consumers for what created this glut of consumer goods. TVs, kitchen appliances, and furniture were some of the most backed up areas of supplies.

Suppliers are also having very similar problems. Weber grills and Helen of Troy (maker of kitchen tools such as OXO) are raising the warning flag over the drop in demand for their products too. Their urgent need to clear inventories is being heard loudly across the U.S.

None of this should be a big surprise to retailers. With imports going through container ports up 26% in the first half of 2022 OVER pre-pandemic levels, this kind of backlog should surprise absolutely nobody. If you’ve seen the “Chocolates” episode of “I Love Lucy” you already had an idea how this was going to end up. It isn’t that hard to estimate the end game here. There is an answer though, more space.

With investors working on developing 40 million sq ft in new space, Amazon is getting its biggest warehouse ever, and at least 38% of this space is already under contract. Amazon’s 4.1 million sq ft is being built over former dairy land, as the retailer put their expansion plans for other areas of the country on a small hold while they see how this expansion plays out.

Other companies are turning to other companies to find storage space for their needs across the U.S. – from old factories to schools to shopping malls. People are finding space everywhere.