Target (Earnings Results)TGT) and Walmart (WMT) show how retailers are feeling the sting of inflation and supply chain issues.
“It is a very challenging environment,” Stephen Lamar (CEO of the American Apparel and Footwear Association), a trade group in the industry, said to Yahoo Finance (video below). The supply chain problems are quite extraordinary. Inflationary pressures are also real and coming from everywhere. It’s materials, labor, freight, energy.”
Target and Walmart both reported Earnings missesAs higher costs ate into retailers’ profit margins, discretionary spending declined this week. Both retailers were unaware of the rising costs of fuel and labor, and they were carrying more inventory than usual.
Walmart’s inventory stood at $61.2 billion at the end of the first quarter. This is about a third more than one year ago. Target’s inventory jumped 8.5% and 43% respectively from the previous quarter.
The current problems are caused by the supply-chain issues retailers faced last year which left them scrambling in order to secure goods.
Lamar explained, “There are a lot of inventory build ups.” “And that was actually a strategy companies used to manage last year’s supply chain crisis, when they couldn’t get goods in. People started shipping early in an effort to mitigate that. They shipped more. This is because these goods are arriving at the right time for the inflationary pressures that have been building to be passed on.”
All things considered it is not clear how retailers will be allowed to unload stockpiled products while prices remain high.
Lamar stated that he could see lower consumer demand in the current environment. “We could also see some discounting. It is clear that the administration must take immediate action to reduce inflationary pressures.”
Inflation data for April showed that prices rose 8.3% year-over-year. After taking out volatile categories such as food and energy, the core CPI (consumer prices index) rose 6.2% over the previous year.
Lamar stated, “It’s not surprising that we’re seeing all those costs translating into higher prices when you look at the inflation numbers coming from apparel, footwear and basic necessities.” “We are seeing prices rise at levels we haven’t seen for a long while. Baby clothing, for example: almost 9 %… That’s really new numbers we haven’t seen for quite some time.
According to the American Apparel and Footwear Association a possible solution is to lift tariffs imposed prior to Trump’s administration.
He said that tariff relief was “the best and easiest way to remove some pricing pressure from these supply chain equations.” “This can quickly translate into lower prices for consumers.”
Yahoo Finance reporter Dani Romero. Follow her on Twitter: @daniromerotv
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