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There are now stories out there about retailers suddenly being “overstocked,” and the shortages having turned into gluts, and suddenly folks are already seeing that the supply chains got fixed miraculously or whatever. But overall inventories at retailers remain very low, and at the biggest category of retailers – auto dealers – inventories are desperately low, and they’re low at other retailer categories, but general merchandise retailers, such as Walmart and Target, are suddenly awash in some types of merchandise.
What happened at these general merchandise retailers, and some others, is that eternally long lead-times and snags and chaos have delayed goods, and when they finally got there, the consumers had moved on to other things. And these retailers ran out of the stuff the consumers had moved onto, and were overstocked with the stuff consumers were no longer interested in.
Having the wrong inventory on hand is a classic retailer problem. To minimize that risk, retailers have shortened their supply chains and they delay major product decisions until the last moment. And then the pandemic hit, and that solution became a huge problem, and retailers had to adjust on the fly. And some retailer categories got caught wrong-footed and are overstocked, while many other retailer categories have very tight inventories or shortages, including the largest category of retailer — auto dealers — which are still out of inventory. The overall inventory-sales ratio – or months’ supply – at retailers has improved only slightly to 1.18 months’ supply:
Inflation in goods – which is what retailers sell – has been far higher than overall CPI. For example, used vehicles wholesale prices, which become the cost in inventory for dealers, spiked by 35% to 45% year-over-year between October last year and February this year. These cost increases have ballooned the inventories in dollars, though used vehicle inventories in terms of vehicles remain tight and actually declined over the past three months.
To exclude the impact of the surging costs of goods, and to get a feel for what actual inventory levels are in relationship to sales, we look at the “inventory-sales ratio,” which is a classic industry metric that shows how many months it takes to sell the inventory on hand at the end of the month at the current rate of sales.
Last week, the Census Bureau released the retail inventory data through April. The end of April is also when the fiscal Q1 of most retailers ends including Walmart and Target.
We’re going to look at it by category of retailer, because they’re big differences.
At auto dealers, the largest category of retailer, which in normal times account for over 35% of total retail inventories, inventories remain desperately low, at 1.28 months’ supply, down from roughly 2.2 to 2.4 months’ supply before the pandemic. And they have hardly made any progress at all:
Auto dealers are now struggling with another issue: Pickup trucks and large SUVs were all the rage in 2020 and 2021 and earlier in 2022, and no one had any in stock due to the semiconductor shortages. Automakers prioritized production of these vehicles because they’re far more expensive and profitable than smaller vehicles, and if they can build only a limited number of vehicles due to the semiconductor shortages, they’d build the most expensive and most profitable ones to maximize their revenues and profits – which they did.
Then gasoline prices began to spike earlier this year, and suddenly consumers were chasing down more economical cars and compact SUVs and hybrids, and now dealers are out of them, they’re just about all gone from inventories, while pickup trucks are starting to accumulate at some brands. But overall new vehicle inventories remain desperately low.
The number of new vehicles at dealer lots, according to data from Cox Automotive, has plunged by 70% from 2019, to just 1.13 million vehicles at the end of May. Many models, especially now more economical vehicles, have essentially vanished form inventory.
The number of used vehicles at dealer lots, at 2.47 million vehicles is tight and below pre-pandemic levels, but there is sufficient supply for the lower sales rates currently, which are kept down by a partial buyers’ strike against these sky-high prices:
At food and beverage stores, supply is nearly back to pre-pandemic levels, at 0.78 months, which is a good thing:
At building materials and garden supply retailers, supply is now back at the upper end of the pre-pandemic normal range, at 1.87 months, same as in April and May 2019:
At clothing and accessory stores, inventory has been improving from the desperate levels last year. The current supply of 2.12 months is about 13% below where it had been during the same period in 2019:
At general merchandise stores, which account for about 12% of total retail inventory and include Walmart and Target, inventories have risen sharply, as their merchandise has finally arrived. Meanwhile, consumers shifted their spending to services such as travel and dentists and entertainment events, and to items that those stores were suddenly out of, and so now there are rich levels of supply, but some of it is the wrong stuff, with shortages in the right stuff. The supply of 1.58 months was the highest since 2007:
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I have no data, but for used lawn and garden tractors, normally a pretty high level of inventory had existed. Today my dealer, a regional major brand name, with 11 dealerships selling green and yellow machines has a total of 7 used lawn and garden tractors across their entire 11 dealerships. Three of these are competing brands of L&G tractors. Just saying….
I live in a rural area, and HD, Lowes, and Tractor Supply all have plenty of throwaway lawn tractors and cheap zero turns.
When it comes to $10K commercial zero turns, $18K subcompact diesel tractors, mid-size diesel tractors, skid steers, and excavators, three different dealers within 25 miles of here have very little inventory. This includes Deere and Kubota.
As I’ve mentioned before, they still can’t build custom homes fast enough here and there’s a lot of farming.
What’s a throwaway mower?
This kind of comment bugs me, because we sell end of line test equipment to lots of places, including residential and commercial mower companies, and I know the level of effort that goes into testing all of them.
My personal throwaway Craftsman mower has required one fuel filter, two sets of blades, and soon one seat and front tires, in 18 years. My own driving has been a little careless, so it has taken a few hard shots, requiring straightening of the tie rods.
Maybe what we have is throughway purchasers,
“Maybe what we have is throughway purchasers”
My throwaway Craftsman mower, bought used 15 years ago, still starts on the first pull and I did change the blade once since I bought it. I do change the oil yearly. Oh, I wash it annually too.
Agreed, my cheap tractor mower lasted almost 20 years. Just the base model at HD way back when. Just maintain it well, filters, oil blades and I had a belt break. But for a tool that makes a lot of dust and vibration, it was fine. Kind of like telling the BMW owners that my Honda was a better buy. Some things are priced high to induce us to naively buy what we percieve to be the best. But a mower is just a tool and we should always consider the cost/benefit. We have someone cut the lawn now. I like the kid with a beat up pickup and an old mower. The flashy landscapers charge too much.
Most people don’t maintain their garden equipment. Those that do can get reasonable service from even the cheapest product. Those that don’t, throw them away and simply buy another. How many mowers do you see stored out of doors?
I had a Honda mower for 22 years. AFAIK, it’s still running. Original spark plug. Replaced the bag a few times and always bought new blades to make sure they maintained their balance and didn’t trash the bearings on the deck. I think I paid $4 each for the blades – OEM. Scraped the aluminum deck once a year – whether it needed it or not :-/.
I have a string trimmer in the garage. Also a Honda. I bought it used in 1998 and it still starts on the second pull with it’s original plug. The key is to drain the gas at the end of the season. Run premium. Change the oil when it’s foul (4 cycle weed whip). Put Stabil in the gas can. Rotate the fuel supply (I dump whatever’s left at the end of the season in my car and refill).
The police in my area call the Dodge Chargers throw-away squad cars. They’re good for a couple of years, used up and then practically worthless to anyone afterward.
Sorry to zoom in on this, but that’s complete nonsense.
Product quality is engineered to target different buyer segments, use cases, distribution strategies, geography, and price points.. among other things. Some products land spot-on in terms of price/quality trade-off. Some miss by a little bit either way, but generally, you get what you pay for.
Cheap stuff can work if it’s used well within its design parameters, but it won’t outlast a high-quality item in the same use case.
I bought a $20 (yes $20. It was on clearance from $80 at Walmart) push mower a few years ago to handle a tiny patch away from home. It mowed okay for about two seasons now it won’t stay running, and it’s barely serviceable. It doesn’t even have a drain plug, a choke, or a variable engine speed. THIS is a throwaway mower.
Replaced it with a used 2008 honda push mower for $200, and it’s an absolute beast doing the same job. You get what you pay for…
Ha Ha Ha Throw away customers! My 48″ Scag is from ’87, I got it used 22 Years ago. replaced a few belts & 1 blade spindle, 3 sets of blades in that time. My neighbors have gone through at least 5 crappy riders each. They buy crappy Home Depot riders and then don’t sharpen the blades, don’t check the oil, don’t change the oil. they last about 2 years & engine blows up. Funny that anyone else notices this…..
I am going to have to tell my kids once upon a time, you can walk into a dealership and negotiate on pricing and pay last than sticker even for desirable model. Paying sticker is generally a big no no…those were the days like when cars came with 8 track, cassette, CD player…
Ever notice that the only couple things Americans dicker on in price are both the most expensive. Nobody goes into Home Depot and tries to beat manager down on a Ryobi tool.
Try to find the manager to even try to do that!
Who would buy a Ryobi tool?
I once went to a “liquidator” here in PHX. They had all kinds of returns from HD and Lowes. Guess what the biggest pile of junk consisted of? There had to be 1,000’s of Ryobi tools of all descriptions.
The most expensive thing you can buy is a cheap tool. I learned that when I bought some Porter-Cable Made in China carbide router bits at Costco. On a first pass with a brand new bit, one of the carbide tips went into orbit at 20,000 RPM and embedded itself in the drywall in the garage. The whole box went in the trash. Imagine if someone was in it’s path.
El Katz- getting hard to know who builds what. Porter-Cable is owned by Stanley Black and Decker (SBD). Ryobi is built under license of their name by Techtronic Industries Co., Ltd, which also makes the “orange” Ridgid stuff under license from Emerson and sells it to HD. They’re a Hong Kong company that also owns Milwaukee electric tool Co and many others. All the above may have changed. I own thirty -plus Milwaukee tools, all made in Milwaukee over forty years ago. If forced to buy a modern power tool, I’d look at Hilti and Makita first. Chinese router bits sling carbide bullets for sure, right up there with abrasive metal cutting wheels, grinder guard in place, safety glasses and face shield and it can still get you. “Throwaway” dogs have always been the most loyal and loving pets in my experience.
Good topic. I was wondering where the excess inventory that I read online is supposed to be.
I have a friend who has a year old car in the shop that will not start because the dealer cannot find the part anywhere. It has been there for a week.
Then my contractor drove to 5 Home Depots looking for a specific adhesive for putting up wall boards. Drove over 150 miles in the search. Normally it was always stocked.
You can check Home Depot inventory online. They can even pull it and place it in a locker at front for you. There is absolutely no reason to drive around hoping to find an item.
Waiting and watching lumber prices. Got two important projects to complete this summer but I can wait.
Prices are coming down finally, but hopefully they’ll drop even further in the next couple months.
Looks like things are generally normalizing for goods, which are most important to lower income folks. Inflation might be more tame in that sector going forward since buyers are leveling as well.
Services, however, are likely to be the opposite, but if wages are going up AND service costs are escalating, maybe inflation will hit people who are a bit more able to handle it vs the lower income crowd ??
This is why our local Toyota dealer is suddenly begging us to trade in our 2007 Prius.
Gosh no. It runs great and is paid for.
I have a friend who’s driving a Prius V that’s seven years old. Thing looks like it’s in mint condition and she’s not about to give it up.
A seven year old car today is essentially near-new.
EXACTLY Wolf,,, and exactly why sold the ’19 Ram w 11K miles and bought a couple of 20+ year olds, both ”collector items” already due to condition… Both run just fine, and with their gas tanks full,,, at this point in time I can go about six months, maybe 8 months without buying gas, AT ALL… And then, when this current oil/gas ”crunch” is over,,, and it almost certainly WILL BE over sooner and later,,, Give one or both to the grands, for their first vehicle, both being USA made and ”tough enough” for a teenager to live through their first crash, etc. Just hope all you grand parents take this into consideration for YOUR ”grands.”
Something is not adding up with the new car shortage. Semi conductor production is at its highest level ever, yet they still can’t build cars? Initially, they said this was supposed to be resolved last September. Almost 10 months later and it’s worse than ever.
This is a failure of a business model. Off-shoring production is a national security risk. But beyond that, there’s something else going on. I don’t believe it’s semi conductors at this point. It’s the entire business model, or even something more nefarious, like an intentional price gouging situation.
Come to think of it, the “chip shortage” has not been front and center in the news in a good while.
I just found this, released a few hours ago:
“Toyota cuts car production in July by 50,000 amid semiconductor shortage”
Not buying this excuse anymore.
I think the chip shortage is real, since people also (up to now) went on buying sprees for electronic goodies. Also, anyone with sleep apnea knows there is a shortage of cpap/apap machines (also due to the chip shortage) so people needing a new machine when the old one dies, or a person newly diagnosed as needing one is out of luck because months go by and we only get messages that there is a shortage and they still don’t know when we will get a machine.
Seems as though inventory-to-sales is back to normal in many segments of retail with autos being the really staggering outlier. That seems to jive with what I’m seeing on the ground here in SoCal. I haven’t had trouble finding consumer goods since stores seem to be pretty well stocked on most isles these days. But my sister in-law recently got T-boned by a red light runner. I’m the family car-guy so I ended up helping her find a used car. Boy, this was not a good time for her to have to buy a car. We managed to find an $8k Chevy Cruze which would have been maybe a $5-6k car a couple years ago. I put about $1k of parts in it to get everything up to par and had no problems finding replacement parts. I have to admit that I really haven’t noticed massive increases in car part prices or had any availability issues. Just did a bunch of transmission work on my ol’ BMW 335i to get another couple years out of it while the used car market calms down a bit. All new shift solenoids, a bunch of seals, new pan/filter, new fluid… Parts prices didn’t seem to be much more expensive than normal and I had no issues getting them fast.
Food prices were exploding for a while there, but if I’m honest, it seems like that price expansion has at least slowed down in the last couple months. A good recession would hit demand for cars and houses hard, which might actually finally take a meaningful bite out of inflation. Too bad that even if we get inflation down out of the clouds, we’re still stuck with the ratchet effect on pricing… Our Fed was just fine letting inflation run “a little hot for a period” to make up for a sub-2% CPI, but they’ll never let deflation occur to make up for today’s 8%+ CPI.
Went to local day old bread store in Omaha roteelas best bread in the country ,were sold out of white bread .First time ever ,customers complaining,I just bought wheat bread .Wait a year be much worse
“At food and beverage stores, supply is nearly back to pre-pandemic levels, at 0.78 months, which is a good thing:”
Do you mean 0.78 hours? ;-)
Several months prior to the pandemic I was talking to an assistant manager at a Walmart. I commented they were out of peanut butter, as college students had just come back. They said they had no room for inventory not on the floor, which is true.
I said to them, “If there is a natural disaster you will be out of food in less than an hour.”
The following spring the pandemic hit, and shelves everywhere were quickly bare.
Starting at least a decade ago, I noticed every time they “remodeled” a grocery story, there was significantly less inventory afterwards. Grocery stores were switching to “Just in Time” supply chains, just as industry had; business managers all go to the same colleges and learn the same ideas.
Walmart, the store in question, just got done reducing the floor space for food, such that a female employee with tiny hands was having trouble lining the merchandise up on the shelf. There was only a single narrow row of many items.
Locally, now, inventory on the shelves is thin, and seldom is there much behind the front row. They have been out of one store brand item for a coupe weeks; not Walmart.
Six Sigma in practice. Lean inventory is now standard business process.
For cars, maybe initial inventory shortage has resulted in a more lasting shift in purchase mode? Seeing ads to reserve your car, buy from production pipeline and pick up when arrives at dealer. Surely less inventory more profitable for dealers, especially with inflation, maybe consumers adapting or made to adapt too.
What’s old is new again. That’s how it was done in the “olden days”. The original business model was “build to order” with limited on ground inventory. Once cars were built in lot sizes, the business model changed.
The Japanese changed the model when they came to the U.S…. If you wanted a white Corolla, you got a blue interior… options were by “trim” levels. You couldn’t order power windows in a stripper nor crank windows in the top of the line car.
Back in the dark ages, it wasn’t uncommon to find green cars with blue interiors and black carpeting. That’s what was left on the shelves at the end of the production. The manufacturer built these mutts and shoved them down the dealer’s throats through a process more affectionately known as “sales bank”. Sales bank usually occurred on a Friday before a long holiday weekend so the district managers, who had been called into the regional office, had an incentive to jam the units down the dealers’ throats so they could go home. Ask me how I know.
I was around car lots a lot as a kid in the 60s. I remember dealers complaining about being stuck with cars like that (as well as ugly duck trades)… “Heck, we’ll never sell that”…
I never forgot what one (less pessimistic) guy always said… “Naw. We’ll sell it. There’s an @ss for every seat”
Cars that people want, high turnover categories, are almost sold out. Low inventory. Pickup trucks that people don’t want, are too risky, too expensive for dealers to stock. Bad items, No turnover..
If a dealer has purchased his allocation of vehicles, and the manufacturer has produced them, he is obligated to buy them when delivered. The exception is if the dealer exceeds his floor plan (line of credit) and, with the current inventory, is unlikely. It’s in their franchise agreement. The other option is to cancel their franchise and sell their inventory back to the manufacturer. Buy sell’s don’t count as they are a “going concern” and still obligated to fulfill their side of the franchise agreement or they could be terminated.
Dealers are also required to stock a representative inventory of product (in other words, both the stuff that sells and the stuff that doesn’t sell so well). There are ways they can manipulate the sales data to not get stuffed with slow movers. I have seen where a small dealer sells one “slug” and he earns 6 because he was the only one dumb enough to report the slug sold. Sales reporting is an art form.
Auto retail ain’t what the average person thinks it is.
1) El Katz. What if the min inventory isn’t sold. Can Ford dump more F-150 on dealers. It’s too risky for both. That’s why 50K F-150 have chips shortages and Toyota Camry don’t. 2) Few major dealers are cancelled, absorbed by others. Bet their numbers is shrinking. Consolidation, for a discount. Some disappear completely, wiped out. More concentration in the mid-size level. 3) The dealers are paying the price for Ford and GM mistakes.
Yes, Ford can and will dump inventory on the dealer. That’s the business model. The *risk* is that Ford will have to place incentives on the vehicles to move them. Anything will sell at a certain price. That’s the business… just like day old bread or expired canned goods.
Correct. Major dealers aren’t canceled unless for morals clauses or failure to meet franchise requirements. While not common, it does happen. I have administered those and sat through court hearings.
Are you implying there’s a “discount” for a franchise? Franchises are the property of the manufacturer. The dealer has a right to use trademarks, etc., granted by the dealer agreement, but the franchise cannot be sold. The assets of the corporation (dealership) are sold. The manufacturer has to approve the transfer and can withhold approval of said transfer for reasonable business reasons (no proof of source of funds, etc.). Absorption/consolidation occurs through “buy/sells” and are quite lengthy and not cheap. If a dealership BK’s or gets canceled, the franchise reverts to the manufacturer. Dealerships holding viable franchises (Toyota, Honda, Hyundai, MB, BMW, etc.) go for a premium, which is known as “blue sky”. The buyer will pay above asset value of the corporation (parts, buildings, special tools, vehicle inventory, receivables, etc.) for such dealership entities, but only if the buyer gets factory approval.
Auto dealerships are the last vestiges of horse trading. Dealers know that there’s a metric sh*t ton of money to be made and, conversely, lost. Money losing dealerships are often engineered losses (expenses paid to their management companies, consulting fees, inflated rent factors, the Cessna Citation, yacht or girlfriend’s condo on the floor plan, etc.,). If you knew how the pricing of vehicles worked (what the real wholesale was to the dealer vs. what they show you when they claim to be selling it to you “at invoice”) you’d have a better idea how much money floats around unseen from middle management and the lot lizards. Rest assured that a MB dealership doesn’t operate on an 8% new car margin.
Small dealerships and mid-sized dealerships will slowly become extinct. Operating costs are too high for the Mom ‘n’ Pops. I have a few close friends who have tried to stay independent of the public companies (small towns) and are getting squeezed by the big players in adjacent markets. There’s efficiencies of scale with centralized accounting, supply procurement, etc., that the bigs enjoy but the smaller stores don’t have.
Nice write up. Information well received. Appreciate you taking the time to educate.
Two years ago my wife and I came to the conclusion that our 20 year old motorhome’s days were numbered. I told her that if we wait 5 years we’ll get a practically new 3-4 year old super fancy motorhome for much less than could be believed (mostly due to the stimmy crowd making impulse purchases and having to sell). Those times are coming much sooner, but we’ll be patient. Maybe we’ll even get an 80 inch flat screen for 500. We all saw this, why didn’t the fed? Or did they?
My wife met a couple in Bonners Ferry, Idaho, who were living out of an RV. They had just moved from Texas and were looking for an affordable house (good luck with that). She asked what their space rent was at the RV park where they’re staying. She was floored: $900 a month. Say what?
Point being, Bob, old motorhomes might be someone’s perma-home.
You really think people used their stimulus checks to purchase a $100,000 motor home?
Maybe not the $1,400… but recipients of PPP’s? Could happen.
The stimmy crowd bought the F-150’s or a toy hauler with sleeping quarters.
RRP, new all time high.
Well, I can STILL buy homebrewing beer supplies, from a local retailerw – malted whole grains, yeast, malt (dried malt extracts, hops .. so I’m all good going into the blackhole maw of recession … coming out??, well ….. we’ll see.. I can still brew a good mead/melomel, if I save some sediment from the carboy, so… dito w/ the beer grog.
Purchased some items via ETSY, as I hate Jeffery’s gig* with a passion .. Just doing my part to keep those chains tight! just with the lessening guilt ‘;]
Costco had awesome prices on Copper River Salmon ($13.99 pound vs. $30 a pound at the fancy grocer) and USDA Prime – not choice – well trimmed filet tenderloins. The spread between the Prime and Choice was $4. Looks like the “luxury” food categories may be moderating as it’s no longer in some people’s budgets.
Many years ago, they widened the range for USDA Choice. That’s why some steak houses will say “Upper 1/3 Choice” on their menus (and it’s very good).
Choice can be excellent or it can be pretty bad.
The grades you can count on are USDA Prime and Select. Prime is always very good and Select simply means that it was inspected and it won’t kill you.
Anyway, if you can get *good* Choice beef, it’s the sweet spot for value and quality.
El Katz, great stuff. 1) If dealer is canceled or bk the franchise revert to mfg. 2) Ford & GM sample line have no/ little demand. They produce expensive pcs in era of high gas prices, higher interest rates. They are located on near major intersections with large parking lots, large RE in online era, when buy/sell is done by clicking, employing sophisticated Mech’s in era of thousand computers in each car and ev. It’s an old business model with huge o/h and payroll selling low turnover items . 3) They must find a buyer, otherwise the dealership can go dark, or erased. 4) Option #1) a shotgun marriage. 5) option 2) large discounts, incentives to compensate for the risk in the next 4-5 years. The price must be deeply discounted for 10% – 15% compounding.
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California special: Pending sales collapse by 30%, prices begin to “moderate,” San Francisco condo prices decline year-over-year.
The June sell-off did a job on them.
This crash beneath the surface showed something had broken, that the magic had died, that hype and hoopla were suddenly unable to carry the day.
Average price jumps by $5,000 from year ago, to $45,495.
Someone might think, OK, I could speculate with the J-Pow Pattern at the next Fed meeting.
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