Retail companies increase inventory to historic high - La Tercera

They have gone from one extreme to the other. The explosion in consumption under the effect of state aid and withdrawals directly affected stocks. There were not a few companies with bankruptcies Stock than before the growing wave of consumers could not cope. A year earlier, the logistical crisis had also contributed: the lack of containers, combined with the closure of ports impacted by the pandemic, has also complicated the flow of goods. In the first quarter of 2022, the pendulum swung to the other extreme: retailer inventories hit record highs. The INE index reached 162 points, the highest figure since records were recorded. It was only in the third month of the year that the stock rose 7.4% from February, a rise that has accelerated since the second half of last year. And from November, the progress is already in double digits per year. In twelve months, data has increased by 29.8%.

“Growth is very strong, despite the fact that we are comparing ourselves with weak data,” explains the head of studies at the National Chamber of Commerce (CNC), Bernardita Silva.

And all of this has had a direct correlation in the companies of the detail. Between December and March, Falabella inventory in the department store sector increased by 25%. At Cencosud, which operates in Paris, the increase in this segment is 32%, while at Forus the stock jumped to 40%… and so on (see infographic). An international phenomenon: According to Bloomberg, stocks of S&P consumer companies reached $44.8 billion in the quarter, a figure 26% higher than a year ago, forcing giants such as Walmart to pay for storage and other so many price cuts.

In Falabella, they explain that, given the high demand for products, stocks in 2021 have reached exceptionally low levels. “Currently, this situation is normalizing”, they underline. Indeed, Forus, which reports a strong quarterly increase, accuses that in January and February, the Stock was particularly low given the delays in restocking.

In Falabella they indicate precisely that the pandemic has affected the production and transport chain, causing an increase in the processing time of the order from its shipment until it reaches the warehouses or stores. This delayed shipments of goods in transit, also affecting inventory volumes. In fact, from other retailer They add that such a delay has resulted in the assembly of products, and in fact some should be spared to arrive after the season.

A large number of people move to different shops in downtown Santiago. PHOTO: CRISTOBAL ESCOBAR/AGENCIAUNO

Specifically, in department stores, in addition, the high figure for the quarter was driven by purchases prior to the Cyber ​​event, held at the end of May, which concentrated Falabella’s bets on its own imported products.

To this was added a currency effect. In the sector they explain that if before they bought with a dollar at $700, now it exceeds $800, reaching the total value of the inputs. “We believe current levels are normal and incorporate several lessons learned from recent years regarding logistical challenges,” says Santiago Chamber of Commerce head of studies George Lever.

According to the analyst, 2021 was the abnormal year. Companies had indeed forecast a more restrictive year with lower levels of activity. However, state aid and withdrawals of funds pressured demand to unexpected levels. In addition to logistical problems. “All of these effects generated a decline in stocks for that period, which would be the ‘abnormal’ observations,” says Lever.

Shelter of a similar year also increased orders. It is that although last year was weak, the data for this exercise still exceeds pre-pandemic levels. If Paris stocks in the first quarter of 2020 were $243 billion, they are now at $268 billion. In Hites, they went from $44,367 million two years ago to $82,655 million, or 86% more.

In a multistore, they assure that now the standard with which the stocks are analyzed is different. An additional amount is necessary to have a reserve in case the logistical conditions become complicated again. “Given greater uncertainty in the foreign trade and domestic demand chains, optimal inventory levels are now higher than pre-pandemic levels, so the sector is adjusting to a greater margin of safety,” says Lever.

Bernardita Silva, however, adds an additional fact: the slowdown in consumption. “Imports are still very strong, but sales are already starting to slow down and stocks are starting to pile up. A year ago, in the midst of a consumer boom, Falabella’s stock turned in 98 days, now it takes 128. And Sodimac’s stock has gone from 50 to 89 days.

In the world there is already retailers who have taken action in this regard. The North American chain Target assured this week that it would lower the merchandise and cancel orders to adjust the size of its inventory. The semester ended with inventory 43% higher than a year ago. A similar situation occurred at Walmart. Its merchandise rose 32% in March. And they estimated that it would only take two months to stabilize it. At Macy’s, the increase was 17%.

In the domestic market, they believe that if more inventory than requested is accumulated, price cuts would be activated and liquidations that were not seen last year would resume.

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