A High-Stakes Holiday Inventory Balancing Act

The holiday season is coming. Tariffs are continually changing but are here to stay. Oil and fuel prices have skyrocketed. Interest rates have risen. Inflation is seemingly touching everything.

Amid this and other global disruption, just-in-time ordering has become a strategy of the past for many companies, which are making proactiveness a priority in light of sourcing challenges.

For retailers, that proactiveness can mean front-loading inventory to ward off additional spend — from increased tariffs, inflation or other factors — later, says Marcos Shen, CEO and board member at B Stock, a B2B platform for excess merchandise.

Their reasoning: “This way I can shoulder or absorb some of the potential hits that we may take from a tariff perspective later,” he says. “And so inventory levels, from what we understand from our customers, have been higher in certain categories.”

But should consumer spending begin to soften, will that strategy backfire? For retailers, the economic and geopolitical realities are fueling many uncertainties.

Will consumers hold back on holiday spending? Are they going to be more price-sensitive? Will they continue to be loyal to certain brands, or will they be fickle? How will this impact my supply? Have I ordered too much?

Holiday Imports Continue Strong

The holiday shopping season seems to start earlier every year. Shipments hit warehouses in the summer, and some stores started putting holiday merchandise on the shelves (and consumers started shopping) in September.

“Black Friday might still be an event, but the holiday season has started way before that now,” Shen says.

According to the National Retail Federation (NRF)/Hackett Associates global port tracker, July and August were the busiest months for imports, with each recording 2.3 million 20-foot equivalent units (TEU), but September remained strong, with a forecast of 2.8 million TEUs.

“The truth is that the peak season started early and was stretched out through the summer and early fall, with the difference from month to month often amounting to little more than a rounding error,” NRF vice president for supply chain and customs policy Jonathan Gold said in a press release.

In September, the NRF indicated that September’s amount would likely be above average.  “We thought the peak season would be mostly behind us by now, but that’s not the case,” Gold said in a press release. “But consumers keep buying despite tariffs, inflation and high fuel prices, and retailers keep bringing in merchandise to meet demand.”

Roller-Coaster Ride

During the past six years, supply chain organizations have been slammed with sourcing and supply disruption.

“We’ve run the gamut of things — the coronavirus pandemic and supply shocks, congested ports, tariffs — that can throw a wrench into this,” Shen says. “But the good news is that retailers, and brands as well, have become far more resilient when it comes to these types of shocks to the system. They’ve built stronger supply chains. They’re using technology and data to identify issues more quickly and anticipate some of the changes faster.”

Retailers that have been through this before and built appropriate infrastructure will be better equipped to handle the continuing disruptive environment, he says, and make inventory decisions that best benefit the organization.

Front-loading inventory to save money in the future can increase costs in other areas. Trucking is becoming more expensive, but so is storage, Shen says.

“This suggests that retailers will decide to make quicker decisions (about the outcome of extra inventory that doesn’t sell quickly) because they don’t want to pay for storage,” he says. “Plus, I think a lot of new brands and retailers are not as equipped to pack and hold inventory like they used to.”

Consumers Are Savvier

Consumers want a good product, a good brand and merchandise that is going to last, Shen says. But do they have to buy it brand new in the box? Many consumers have realized that open-box, returned or overstocked merchandise are still great products, he says.

“This has really changed over the past few years, particularly with young consumers’ interest in (buying) secondhand,” he says.

Plus, consumers are always looking for deals.

If demand should soften, retailers that overbought months ago might turn to a tried-and-true strategy ­— offering discounts during the holidays. If they want to ride out peak season to see how sales fare, Shen says, another option could be beneficial: Using B2B recommerce platforms and resellers to right-size inventories.

(Image credit: Getty Images/Demaerre)