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CE & Appliance Retailers Concerned About 2023

CE and appliance retailers are punting on business holding up in 2022, with several telling ChannelNews that their biggest concern is 2023.

Currently one of the in-demand products is heaters with stock now being sold in stores ordered up to 14 months ago, when prices and freight were cheaper.

Distributors are now claiming that 2023 heaters could cost up to 30% more when they add rising freight, wages, and operational costs.

We also know of one audio brand that is now looking at the concept of manufacturing speakers in Australia as opposed to placing orders on Chinese factories.

At the start of COVID some retailers cut back on the level of stock they carried while the likes of Harvey Norman cut dividends choosing to reinvest the money into stock, now several retailers are trying to shift stock as inventory levels blow out.

A recent Goldman Sachs report also expressed concern about elevated inventory levels after finding that retail sales growth in some categories over the last few years had fallen short of growth in exports from China.

Goldman Sachs analyst Lisa Deng believes companies that source directly and have a large proportion of private label products, such as Wesfarmers’ Kmart and Premier Investments, are likely to have higher inventories than those that source locally, such as JB Hi-Fi.

Seversal retailers have told ChannelNews that they are seriously concerned about 2023 and the risks associated with stock levels and inventory.

According to Macquarie research, about 54 per cent of listed companies that provided inventory data had higher than expected stock levels in the six months ending December and this continued in the first few months of 2022.

At a brand level organisations such as Samsung are seriously over stocked with smartphones due to a global slowdown in demand.

A new report has recently claimed that that Samsung is now carrying a surplus of up to 50 million smartphones which is 18% of the 270 million mobiles that Samsung said that they were planning on shipping this year.

According to TheElec, the Galaxy A series makes up a large portion of these models.

Samsung who manufactures their smartphones in Vietnam and South Korea produced over 10 million smartphones in January and February 2022 with stock still in the distribution system.

Currently retailers in Australia are discounting to clear excess stock after ordering significant levels of inventory late in 2021.

Now as inflation and rising interest rate issues kick in there is concern as to what consumers will do as power and electricity costs cut into family budgets.

Many are already working from home to cut down on travel costs due to the high cost of fuel.

The Financial Review claims that working capital is increasing, stretching balance sheets at some retailers, cash conversion is dipping, and the gross margin gains of 2021 are disappearing quickly are forced to go back to pre-pandemic levels of discount marketing discount heavily to get inventory levels back under control.

The combination of softer demand, elevated inventories and steeper discounting has already taken a toll on earnings at retailers in the US, including Target, Urban Outfitters, Abercrombie & Fitch, and Walmart.

Analysts fear Australian retailers face a similar fate.

According to Goldman Sachs, Wesfarmers’ days/inventory (the number of days for inventory to rotate) was 97.5 days in the December-half, compared with an average 88 over the three-year period pre-COVID. Goldman Sachs expected days/inventory to fall to 90 by 2023, depending on sales over the last few months.

JB Hi-Fi, which has been understocked rather than overstocked, largely due to the shortage of chips for consumer electronics, had days inventory of 56.2 in the December-half, vs 63.7 pre-COVID.

Retailers including Wesfarmers, and Super Retail Group have said they are comfortable with higher inventory levels, describing them as a deliberate hedge against supply chain disruption and rising input costs.

“We feel comfortable about the health of our inventory, albeit it is a bit higher than we’d normally like,” Wesfarmers chief executive Rob Scott told Window Shopping.

“Some retailers including ourselves have made a deliberate decision to carry more inventory given the disruption we’ve seen both internationally and domestically,” Scott said.

Wesfarmers CEO Rob Scott says elevated inventories at Kmart and Target are a hedge against ongoing supply chain disruption.

Former JB Hi Fi CEO Richard Murray who now heads Premier Investment retail operations claims he’s “100 per cent comfortable” with the retailer’s inventory levels, which rose about $40 million or 38 per cent in the December-half.

“We’re in the business of selling product, we need to have products to be able to sell,” Murray said. “Financially we’re fine, we don’t have any issue in having an extra $10 million or $20 million of stock, but we’re a lot different to many other retailers.”

Another issue for retailers in Australia is consumer confidence which dropped in June as accelerating inflation and the Reserve Bank’s outsized half-point interest-rate increase spooked households about the outlook for the economy, this could drop further as the Reserve Bank increases interest rates next week.

The confidence index dropped 4.5% to 86.4 points, approaching levels normally seen during major economic downturn.


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