Congratulations! We have made it through yet another peak season all the way into the new year. While we all deserve a little R&R in 2023, now is the perfect time to look back at what happened in 2022 to strategize for what 2023 has in store, especially regarding fulfillment and inventory management.
2022 and Inventory Glut
According to Modern Retail, 2022 was the year of inventory glut. After years of relying upon just in case (JIC) inventory strategies to help combat pandemic-related disruptions to the supply chain, consumer demand shifted yet again and proved the risks of stocking excess inventory. During the first two years of the pandemic, demand for apparel and household goods skyrocketed, and retailers expected more of the same in 2022. But, as we have come to learn in the past year, consumers started spending more on travel and held off on discretionary purchases because of record inflated costs.
The result? “Retailers found their warehouses and stores stocked to the brim with merchandise that shoppers didn’t want to buy — or, at least, at full price.” By the end of the first quarter, Walmart was sitting on $61 billion worth of inventory, and Target’s operating income dropped a whopping 43% year-over-year.
This problem did not end in the first quarter, however. With an underwhelming Black Friday in 2022, many retailers are still faced with inventory bloat in their warehouses. In fact, many retailers are having to continue winter sales into the new year to move extra inventory; Gap is one such company relying on markdowns and discounting to get some of its $3.04 billion in inventory off its shelves.
So what now?
The industry has learned a tough lesson that predicting consumer behavior—especially based on historical data during the pandemic—is complicated at best. This is a given, but there is another lesson hidden in this situation: maybe it is time to stop operating like the pandemic is in full force.
It’s 2023. Can we finally declare that the pandemic is over? I am not sure that I have the authority to make such a proclamation, but at least in the realm of the supply chain and logistics, I think it is time to move on. Disruptions in 2022 were down; in fact, the inventory bloat of these major corporations came from over-anticipating supply chain shortages in addition to miscalculating consumer demand.
Looking Forward, the State of the 3PL Industry Report
In this year’s State of the Third-Party Logistics Industry Report, we predict a move away from these just in case inventory strategies in favor of the just in time (JIT) lean inventory practices that were the norm before the pandemic rocked the industry. As we say in the report, fulfillment is the bread and butter of a third-party logistics (3PL) warehouse, so preparing for the new year with the right strategy in place will make all the difference for combatting inventory bloat. Quoting an article by Forbes, “if we aren’t careful, we could be facing a wave of what the accountants call ‘excess and obsolete,’ the writedowns of excess inventory that often follows stocking binges.”
The excessive stock reported by Gap and others at the end of the holiday season seems to signal that the retail industry at large has fallen into the excess and obsolete trap. If you are waiting for a sign to switch back to JIT, this is it.
For more predictions ranging from automation to customer service to fourth-party logistics to deeper insights in the realm of fulfillment—including how omnichannel fulfillment is still growing—download the 2023 State of the Third-Party Logistics Industry Report. You can also watch our webinar going over the report if you are more interested in podcasts than reading (no shame)!
