Morgan Stanley reported Monday that jaw-dropping inventory levels are a key risk to retailers, and there is a 19% discrepancy between inventory levels and sales growth. Additionally, according to Descartes, which aggregates U.S. Custom data, reports that US imports sank in September and posted the steepest drop since 2020 lockdowns.
The headlines are daunting.
We can chalk this up to skidding demand amid a lot of inventory. The reverse bullwhip effect that many predicted back in May.
Companies with high consumer exposure have slashed their ordering — even though this time of year tends to be when retailers are beefing up their warehouses ahead of the holiday season.
According to the Morgan Stanley Shipper Survey, in which some 100 corporations regularly share their transportation needs and macro expectations, net ordering levels have reached the lowest point in the survey’s 12-year history. Ordering levels are down 40% year over year. Net inventory levels are also unusually high.
The report offered guidance, “Faced with a glut of inventory, companies will need to decide whether they want to accept high costs to continue holding inventory, destroy inventory, keep prices high and take a hit on the number of units sold, or slash prices to stimulate demand. We believe many will turn to aggressive discounting to solve their inventory problem which is likely to spark a ‘race to the bottom’ as companies attempt to cut prices faster than peers and move out as much inventory as possible. This dynamic will weigh heavily on margins and fuel the earnings slowdown.
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