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Coronavirus leads Amazon, other retailers to stockpile holiday inventory earlier

Amazon.com Inc. and other major retailers are stockpiling holiday merchandise earlier than usual, a move experts say will improve the availability of products that consumers are expected to buy during the critical fourth quarter and shield the companies from further supply chain disruptions brought on by the coronavirus crisis.

The pandemic has led Amazon, Walmart Inc., Target Corp. and other retailers to import items like consumer electronics, home appliances and athleisure well ahead of schedule as they kick off the holiday season early. Consumer discretionary imports surged 21.6% year-over-year in September, accelerating from 16.4% growth in August, according to Panjiva, a business line of S&P Global Market Intelligence. Normally retailers start rushing holiday-related imports in October.

It is a clear sign that companies are stockpiling, Chris Rogers, supply chain analyst for Panjiva, said in an interview. "It's not that furniture sales have gone up by 50% necessarily; it's that the companies are wanting to get ahead of the game," he said.

The ramp-up in August and September imports is especially notable given import activity earlier in the year. Consumer discretionary imports fell 1.9% in July and suffered double-digit percentage drops during June and May when many countries were still moving out of lockdown status and factories remained closed.

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Walmart has strengthened its inventory of laptops, TVs and video games to prepare for the holiday season. Experts say retailers are importing holiday merchandise into the U.S. much earlier than usual due to the pandemic.
Source: Walmart

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Retailers are also increasing inventory to prepare for consumers who plan to shop early, experts say. The idea behind stockpiling ahead of the typical October peak is to have goods on shelves and in stock at warehouses by August and September to provide additional time for goods to be shipped from ports to distribution centers, which in turn supply stores.

"I think the majority of retailers are looking at the earlier shopping season this year and recognizing that they want to be ahead of the curve," said Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, in an interview. "You can't wait until November to be ready to go."

US import surge

Much of the boost in U.S. imports is coming from "hardline" categories such as consumer electronics, furniture and household appliances that consumers have focused on purchasing during the pandemic, experts say. "People are entertaining less, traveling less but perhaps looking to spend those dollars elsewhere on bolstering their home set-up," said Zain Akbari, an analyst with Morningstar who covers retailers including Walmart, in an interview.

For example, imports of home furnishings jumped 47.3% year over year in September, up from 38.2% in August and 13.2% in July. The increase is fueled by companies like Walmart, Amazon, Target and Ikea, Rogers said. Imports of household appliances grew 57.5% in September, slower than the 66.2% growth seen in August but up from 24% in July. Rogers said the uptick is being driven by companies like AB Electrolux stockpiling items like refrigerators.

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Meanwhile, consumer electronics such as big-screen TVs and laptops grew 17.5% in September, up from 7.6% in August. Rogers said the increase can be traced to electronics retailers that foresee demand for big-screen TVs and laptops as consumers spend more time indoors during the colder months and the work-from-home trend continues.

Apparel and leisure products saw weaker growth. U.S. imports of apparel and textiles saw a 0.9% increase in September. They declined 7% in August. Leisure products such as toys and fitness equipment also saw weaker import growth, increasing just 0.8% in September, compared with a 3.4% increase in August.

Walmart did not return inquiries for this story. Still, the company has increased its inventory of electronics, focusing on TVs, laptops and video games, and strengthened its availability of gifts reflecting the "new normal" including athleisure, outdoor grills and bicycles.

A Target spokesperson said the company has quickly adjusted to changes in consumer demand and is "sending more inventory to stores than ever before to ensure Target has the most in-demand items."

Amazon said it works "year-round to meet customer demand" during the holiday season and that the company's teams are "constantly working to ensure we have inventory of the products customers want, and provide a great shopping experience."

Mark Shmulik, an analyst at AB Bernstein, said Amazon is stockpiling early to avoid shipping delays, ensure that it can meet fourth-quarter demand and fulfill orders from its Prime Day sales event held Oct. 13-14.

The company typically works to increase shipping and logistics capacity in the third quarter. Still, this year it is even more important to do so after Amazon saw unprecedented demand in the early days of the pandemic that caused shipping delays and led the company to place a moratorium on nonessential goods, he said. "What they don't want to do is end up in the same situation where they can't fulfill orders," Shmulik said.

Supply constraints

Retailers are also rushing imports to replenish depleted inventory and ensure they have enough goods on hand in the event of another government-mandated lockdown, experts say.

"At a minimum, retailers need to prepare for that situation," Akbari of Morningstar said. "Retailers in some respects will have to be more agile because region to region, state to state, there could be some very different restrictions in place."

Fred Hajjar, a supply chain expert with McMillan Doolittle, added that retailers are also working to refill inventory after experiencing "significant delays" on items such as appliances. "In many categories, the supply was slightly interrupted, and the demand was increased," he said.

Supply was certainly interrupted for companies like Walmart, which entered the pandemic with a "lean inventory position" and has been "playing catch-up" in the second and third quarters, said Walmart CFO Brett Biggs during a Sept. 9 retail conference with Goldman Sachs. The company continues to expand its supply chain network and fulfillment operations from stores.

Meanwhile, Target saw demand in stores outpace supply as its vendors faced capacity constraints during the second quarter. John Hulbert, Target's vice president of investor relations, said in an Aug. 19 second-quarter conference call that the constraints resulted in sparse on-shelf availability of goods in many categories but that the company will continue to work with vendor partners "to make more progress in the back half of the year."

Retailers may face the problem of overbuilding their inventory and being unable to sell it all, especially at a time when millions of Americans remain out of work and have less money to spend, said Michael Hicks, an economist with Ball State University, in an interview.

That said, the companies likely have planned appropriate inventory levels with in-house analysts and outside consulting firms that have advised the companies to "take that risk with expanded inventory even if some goods need to be discounted in January," he said.

Tepid growth

The major retailers are stockpiling at a time when the holiday season could see tempered growth after years of increases. Retail sales across November and December have steadily increased over the past 10 years, reaching $921.27 billion in 2019, up 40.1% from the $657.38 billion of retail sales posted in 2010, according to U.S. Census Bureau data compiled by Market Intelligence.

Nonstore retailers, a category that includes e-commerce, represented $135.17 billion of the 2019 total, or roughly 14.7%. Nonstore retailers' market share within the retail sector has consistently grown over the years, up from 8.9% in 2010.

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Essential retailers such as Walmart and home improvement companies including Home Depot Inc. and Lowe's Companies Inc. are likely to reap a "larger share of wallet," thanks to access to in-demand inventory and e-commerce capabilities that have helped them outperform the market, said Matthew Katz, managing partner with SSA & Co., a global advisory firm, in an interview.

Barring the possibility of another shutdown, "I think those retailers will have a really strong fourth quarter," he said.

The fourth quarter will also be bolstered by consumers that reward themselves with "self-gratification" gifts, he said. "Maybe it is that new computer, maybe it's a Peleton," Katz said. "If you can't vacation and can't spend time with extended family, you're going to find a way to take care of yourself and your kids."