Excess inventory and fears of a looming recession are leading retailers to offer bigger and longer-than-usual Black Friday deals across North America.
After struggling to keep the shelves stocked because of global supply chain snags during last year’s holiday season, the retail industry has swung to the other extreme, with warehouses now piled high with merchandise. And companies are under pressure to draw down on that inventory before the end of the holiday season, when consumer malaise is likely to set in amid high inflation and a slowing economy, said Kostya Polyakov, national industry leader for consumer and retail at consultancy KPMG.
“Retailers really need this holiday shopping period to hit well for them,” Mr. Polyakov said.
Toys will be the ‘shining star’ of the lackluster holiday shopping season
Buy now, pay later holiday shopping spree could lead to financial hangover
For shoppers, that means extra generous promotions and a wider-than-usual selection at discount outlets, as retailers offload more of their merchandise there. But while the deals started earlier and are expected to last well beyond the usual Black Friday period this holiday, lingering logistical headaches could result in delivery delays, and shipping surcharges owing to high fuel prices will erode some of consumers’ savings.
Walmart Inc. WMT-N, Target Corp. TGT-N, and apparel giant Gap Inc. GPS-N are among the retailers saying they’ve been working through an inventory glut. And while publicly available data on merchandise piling in Canadian warehouses specifically are scarce for sectors such as apparel, experts see evidence that retailers north of the border are struggling with similar challenges.
At Hudson’s Bay Co., for example, shoppers are already finding online discounts of 50 percent and beyond, which is unusual this early in the season, said Liza Amlani, principal and founder of consulting firm Retail Strategy Group.
The overstock issue also means more unsold merchandise is turning up at discount retailers, a boon for cost-conscious shoppers looking for coveted brands.
“The marketplace is absolutely loaded with quality branded merchandise,” Ernie Herrman, chief executive of off-price retailer TJX Cos. Inc. TJX-X, said in an earnings call on Nov. 16. TJX operates Winners, HomeSense, and Marshalls in Canada.
Across the board, the discounts are likely to be particularly deep for big-ticket items for which demand spiked earlier in the pandemic, Ms. Amlani said.
Consumers who rushed to buy desks, laptops and tablets for remote work and online learning amid COVID restrictions, for example, aren’t likely to need to replace those items in the near term. But retailers have overbought office furniture and consumer electronics, according to Ms. Amlani. Other popular pandemic purchases for the home, such as TVs, mattresses and appliances, are also likely to be available at extra big markdowns.
Ironically, the holiday discounting bonanza is due, in part, to inflation. Many retailers overestimated consumer demand and were caught off guard by the impact of what turned out to be soaring prices this year on shoppers’ wallets and sentiment.
In addition, many retailers had brought in holiday merchandise earlier than usual in an effort to beat last year’s supply chain delays, she said. The outcome has been an oversupply of product piling up at warehouses and store stockrooms.
Luckily for retailers, people are still crowding into shopping malls and filling their digital carts, despite inflation, soaring borrowing costs and recession. But the economic doom and gloom that hangs over this holiday season has produced a shift in consumer demand, with shoppers now more likely to buy using credit, and laser-focused on sales, Ms. Amlani said.
Still, while the deals will likely last well beyond Black Friday and Cyber Monday, anyone hoping to get gifts under the tree in time for the holidays may want to account for extra time this year. While backlogs at ports have eased, labor shortages mean it can take longer than usual to offload merchandise. mr. Polyakov recommended that shoppers add a buffer of one to two weeks to retailers’ promised delivery times.
Canadians may also want to work shipping fuel surcharges into their holiday budget. The surcharge for Canada Post and other major delivery services was around 40 percent for domestic deliveries as of late November.
Shoppers may also want to pay extra attention to return policies this year, Ms. Amlani said.
With retailers eager to reduce inventories, rules for sending back unwanted gifts may be more stringent this year.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.