Management & Finance

Store Closures, Slow Shipping Could Drive Retail Prices Lower

The coronavirus pandemic could lead to much lower retail prices for some categories, as store closures and product returns caused by slow shipping lead to an inventory glut.

The problem might be divided into two broad categories: excessive discounted inventory and slow-shipping-induced returns.

Discounted Inventory

Some retail sectors could face a significant increase in discounted inventory thanks to retail bankruptcies, store closures, and stalled supply chains.

Each of these problems may lead to an oversupply of marked-down goods in the next several months.

Retail bankruptcies. The coronavirus sped the demise of several, already struggling, brick-and-mortar retail chains. Many of these companies had planned to shutter stores or even cease operations.

For example, Modell’s Sporting Goods Inc. said in March 2020 that it would shutter all of its remaining 141 stores after bankruptcy proceedings, only to have its going-out-of-business sale interrupted by nationwide shelter-in-place and stay-at-home orders. As businesses reopen, Modell’s is expected to continue liquidating its inventory.

The Covid-19 pandemic also contributed to Pier 1 Imports Inc. filing for bankruptcy and announce that it would shutter all stores and cease operations.

“We are grateful to our dedicated and hardworking associates, millions of customers, and committed vendors who have collectively supported Pier 1 for decades,” said Pier 1 CEO Robert Riesbeck in an official statement.

“We deeply value our associates, customers, business partners, and the communities in which we operate, and this is not the outcome we expected or hoped to achieve. …Unfortunately, the challenging retail environment has been significantly compounded by the profound impact of Covid-19…requiring us to wind down.”

To these bankruptcies, add J.C. Penny Co., Neiman Marcus Group Inc., J.Crew Group Inc., Tuesday Morning Corp., Art Van Furniture Inc., Stage Stores Inc., and many more. And it doesn’t include the hundreds or even thousands of single-store retailers the pandemic has pushed out of business.

What all of these bankrupt businesses have in common is inventory that must be liquidated.

Bankrupt retail stores will need to liquidate inventory at discounted prices. <em>Photo: Artem Beliaikin.</em>

Bankrupt retail stores will need to liquidate inventory at discounted prices. Photo: Artem Beliaikin.

In some cases, these retailers will sell inventory at discounted prices from their stores. Others might sell large amounts of inventory to overstock or discount chains. Still others might auction pallets of goods that will make their way to eBay, Amazon, and other online marketplaces.

In all cases, shoppers should expect to find heavily-discounted items for the next several months.

If your ecommerce or omnichannel retail business is healthy and operating in the same industry segment as one of these struggling or defunct merchants, there could be downward price pressure on some of the products your business sells.

Store closures. Bankruptcies are not the only potential retail inventory problem.

When the shops and boutiques in The Village at Meridian shopping center in Meridian, Idaho closed in late March, for example, those stores tended to have two sorts of seasonal merchandise on display.

First, there were the remaining Valentine’s items, which were already on sale at closeout prices. Second, there were the many and various Easter-themed products ready for the April 12 holiday. By the time those stores reopened in May, both seasons had long passed.

Now, many of those items are heavily discounted.

The example can extend to nearly every seasonal retail item in the country. As stores reopen, they will need to sell through now-out-of-date products.

Thus, this second source of discounted inventory has the potential to lessen demand for similar, full-price items, at least in the near term.

Supply chain in waiting. The pandemic’s shutdowns not only impacted retail stores but also caused closures and employee furloughs at retail warehouses. In some cases, those warehouses had already assembled pallets of goods for a chain’s locations. Those pallets, wrapped in plastic, are still sitting on docks waiting to be loaded on a truck and delivered to a brick-and-mortar store.

Some of these pallets contain the same kinds of Easter or spring items that newly reopened stores are trying to sell at deeply discounted prices.

Thus, supply chain disruptions are still another source of discounted inventory that could push retail prices lower in some industry sectors.

Slow Shipping

The surge in retail ecommerce sales — most notably Amazon and Walmart — along with closures in March, April, and May, has strained ecommerce shipping.

In some cases, the carrier, such as the U.S. Postal Service, has been unable to keep up. In other instances, businesses that furloughed most of their warehouse staff have been slow to ship.

Regardless, slower delivery times have encouraged a new sort of consumer behavior that may impact omnichannel retailers.

Here is an example. Imagine it is early May. Nearly all physical stores are closed because of the pandemic. A kitchen-supply retailer, perhaps in need of cash flow, has put an espresso machine that normally sells for $700 on sale for $500. A shopper buys it.

Fast forward to the end of May. This same kitchen-supply retailer has just reopened its physical stores, but it has not yet been able to fulfill the many orders it received during the espresso machine sale.

A shopper, flush with cash from a stimulus check, goes to the physical store and buys the same espresso machine a second time rather than continuing to wait for the online order. When the online order does arrive a few days later, the customer takes it to the physical store and returns it unopened.

This may sound crazy, but it is happening. What’s more, the returned item is now sitting in the store’s backroom for up to 15 days, depending on the chain’s procedures.

Downward Price Pressure

Collectively, store closures and returns caused by slow shipping could produce an inventory glut in some retail segments, pushing down prices.

Retailers might want to look at their inventory positions and decided if it makes sense to reduce reorders or, perhaps, even try to buy inventory from a new bankrupt competitor.

Armando Roggio

Armando Roggio

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