Getting a jump on holiday shopping isn't just for amateurs. Buyers for heavyweights like Walmart, Target, and Best Buy are right now working hard against the clock -- and the coronavirus -- to fill their shelves ahead of Black Friday and the launch of the make-or-break season of the year.
The rush happens every year, of course, but this year's binge buying is at a level that reflects confidence in the return of consumer demand to pre-pandemic levels, The Wall Street Journal says in a Sept. 16 article titled "Big-Box Retailers Battle for Inventory in Bet on Strong Holiday Sales."
Production lagging surging demand has put the whole supply chain in snapback mode from last year about this time, when inventories and sales both for consumer and industrial goods plummeted. Then the vaccines rolled out, and demand began recovering.
And now, the WSJ says, "The ratio of U.S. retailers' inventories to sales fell this spring to the lowest level in U.S. Census Bureau records dating to 1992, and the measure has ticked up only slightly even as record volumes of container imports have flowed into the U.S."
Competing for product, space, as long as demand stays at the expected pace
The major retailers are now competing all along the supply chain, including with overseas producers and crowded U.S. ports. For example, the WSJ article quoted this from the Aug. 19 earnings call with BJ's Wholesale Club president and CEO Bob Eddy: "We need to play to win. So that means being as aggressive as we can with our suppliers and battling for inventory."
That also means placing a big stake on the delta variant and any continuing economic malaise in the form of unemployment, reduced wages, and/or rising household costs not putting a damper on the all-important consumer sentiment about holiday spending.
One analyst says he's not worried about retailers being stuck with massive stores of unsold goods. "I think the bigger risk is not having enough inventory versus having too much," Rod Sides, U.S. retail and distribution leader for Deloitte LLP, told the WSJ. "We're projecting a much, much bigger holiday season."
Indeed, there was a bit of a September surprise when the U.S. Census Bureau reported that August retail sales rose by 0.7% instead of falling by 0.8% as expected. But there's still a lot that could change that trajectory, as our Maurie Backman lays out here: "Retail Sales Rose in August. Why Investors Shouldn't Celebrate Too Much."
The Millionacres bottom line
From the real estate investor perspective, there are lumps of coal and candy canes in all this, a real mixed stocking. For instance, all that movement of goods involves shipping through a logistics network that has already seen a serious surge in demand for industrial warehouse space, a sweet spot for lots of real estate investment trust (REIT) investment. (To wit, Amazon alone says it plans to open 100 new U.S. facilities in September, and that massive operator is a major tenant in many commercial real estate portfolios).
That demand also bodes well for those big-box stores themselves, many of which also occupy prime spots in CRE portfolios of all kinds, including retail REITs.
But on the other hand, the competition for product might make it tougher for smaller retailers to get what they need to make the holidays happy for them. They, too, are important employers and tenants, especially in the aggregate.
And, if the uptick in demand is temporary and the holidays prove to be a retail bust, that'll be a whole different conversation come January.