Too much inventory, not enough business. Too much inflation, not enough profits. In short, too much of all the things you don’t want and not enough of the things you do. It wasn’t quite that simplistic for the nation’s biggest retailers of home furnishings products, but their quarterly results paint a clear picture of the business trends that have emerged in the past three months—and it’s not particularly pretty.
One fact that was hard to miss: Retailers are still carrying way too much inventory. Target says its levels are up 35 percent over a year ago, and Walmart is in a similar situation. TJX, whose off-price brands T.J. Maxx, Marshalls and HomeGoods are often the final resting place for inventory gone bad, reports that it is being very selective about what it takes now that there is so much being offered. When off-pricers get picky, that means everyone is having inventory problems.
Some top line revenues were higher than analysts had forecasted (Walmart) while others were lower (Target), but whatever gains were made are largely the result of inflation rather than increased purchases. Even with inflation, some retailers saw overall declines in their sales—for brands like Kohl’s, a continuation of a troubling recent pattern. Home Depot and Lowe’s both saw a decrease in the number of transactions at their stores, but the size of individual purchases were up, indicating big home improvement projects by professional contractors were continuing, but smaller DIY jobs by homeowners had been cut back. And in the case of Walmart, much of the top-line growth came from the grocery side of the store, not general merchandise sales.
In more grim news, bottom lines across the category ranged from soft to miserable. Target’s net profits dropped 90 percent from a year ago, one of the worst performances of the quarter. The culprits are the same as they’ve been for much of the past 18 months: higher energy costs, increased labor spending, transportation hikes and all the other inflationary factors the entire American economy is dealing with. The more recent declines in gasoline prices and shipping container rates are probably not being reflected in these quarterly results, but we may see them show up in many retailers’ next reports should things continue to moderate.
Perhaps most troubling for the suppliers who sell to all these giant retailers were future order rates, which are unlikely to improve anytime soon. Walmart said it has canceled “billions of dollars” of orders, and other retailers like Target aren’t far behind. With off-pricers not picking up the slack as much as they used to, and another big home furnishings product retailer, Bed Bath & Beyond, overloaded with its own misguided private label goods that need to be disposed of, vendors could be looking at massive slowdowns in buying over the next three to six months at least. The Christmas season buys are all in place, but it could be borderline disastrous for suppliers who service big national accounts going into the first part of 2023. With the pandemic-induced feeding frenzy in home furnishings sales in 2020 and 2021 helping most of the vendor side of the industry—and potentially covering up financial and operational weaknesses for some suppliers—it seems entirely possible that a rash of bankruptcies and shutdowns are imminent for 2023.
Was there any good news, you might ask? The dynamic DIY duo of Home Depot and Lowe’s both showed encouraging results, indicating that Americans are continuing to invest in their homes. And some of the big-boxers reported that they are still expecting an OK fiscal year overall, reflecting optimism for holiday sales amid declining gasoline and energy prices. Two of the bigger sellers of home furnishings that have so far navigated the economy better than most—Macy’s and Williams-Sonoma—have yet to issue their quarterly reports and could have some better news when they do later this week.
Given the worst forecasts made by many of the so-called experts, this round of quarterly results is not nearly as bad as it could have been. The warehouses may be full, but at least the glass is only half-empty.
Homepage photo: ©KPs Photography/Adobe Stock
Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.