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Bloomberg: Rising Costs, Ballooning Inventories Causes Panic among US Retailers

Taarek Refaat by Taarek Refaat
10:03 PM May 24, 2022
Bloomberg: Rising Costs, Ballooning Inventories Causes Panic among US Retailers
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As US retail companies incurred losses of more than $550 billion in just five days, amid more fears of the continuation of the current volatile conditions during the coming period or their exacerbation.

In a report, the US agency said that investors are waiting for more bad news next week when major US retail companies announce their profits, which may portend a further decline in their stock prices, which may increase downward pressure on markets affected negatively due to fear of inflation and high interest rates.

Last week, the Standard & Poor’s 500 Index lost more than 20% from its highs, affected by heavy losses in the consumer sectors. Bloomberg quoted Neil Saunders, an analyst at Global Data, as saying that the last week in financial markets was bloody for retail due to expectations of further profit declines for retail companies.

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The agency also pointed out that a large part of the problem is that stores are overwhelmed with products that consumers do not want, at a time when the cost of finding new goods for sale and bringing them into stores increases with the high prices of fuel, labor and other expenses.

Walmart and Target, the two largest US retailers, have cut their profit forecasts this year as inventories swell and price increases fail to keep pace with rising costs, worrying investors about how other long-struggling companies might hold up.

In its report, Bloomberg Agency identified some of the main problems facing US retailers at the moment, including costs, as Wal-Mart and Target are seen as some of the most savvy supply chain managers in the business, and they have been dealing with turmoil since the epidemic began. Corona in early 2020, however, the sharp negative impact on the two companies appeared when oil prices rose due to the impact of the Russian-Ukrainian war.

More US retailers are likely to have to cut their forecasts to take into account increases in fuel and freight costs, which show no signs of abating soon, Saunders said, noting that higher prices will not be able to cover the full burden of this challenge from higher costs.

The agency noted that the increasing cost of goods is pushing shoppers to make difficult decisions and making them change their spending patterns, although US retail sales remain strong, thanks to consumers turning to cheaper and private-brand groceries.

The shift to cheaper store shopping supports continued purchasing power somewhat, but at the same time larger retailers are being monitored to see if there is more evidence that affluent consumers are continuing to spend while shifting, said Michael Baker, analyst at DA Davidson. Others are on the alert or cheaper stores.

Bloomberg notes that shipping delays and backlogs had such a bad effect last year that supermarkets like Wal-Mart and Target had to charter cargo ships to keep their shelves stocked with merchandise, and that worked for a while, but this year’s stocks got out of hand.

Retail stores now find themselves filled with clothes, televisions and other discretionary items that customers don’t buy because they direct more spending to basic needs and services, eroding profits.

Tags: Ballooning Inventories Causes Panic among US RetailersBloombergBloomberg: Rising CostsTargetWal-Mart

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