Dive Brief:

• Retailers have largely gotten their inventory under control ahead of the holiday shopping season, National Retail Federation CEO Matthew Shay told the press on Monday.
• He said inventory-to-sales ratios have normalized to pre-pandemic levels as evidence of the industry’s position. Inventories did not come up as a priority in recent conversations with CEOs, he added — a stark contrast to the first few quarters of 2022.
• “The industry is in a better place and will be well positioned for what happens after the holiday season as we get into the spring selling season,” Shay said during the Port of Los Angeles’ monthly media briefing.

Dive Insight:

Retailers have been working to destock for much of the year, but data points and anecdotes alike are starting to suggest those efforts may have bottomed out.

“Our assessment is that the inventory sales ratios are really back to the pre-pandemic levels at about 1 to 1.3,” Shay said. “I think people are pretty comfortable about that. They've got the inventory mix right.”

Going into the third quarter of 2023, major retailers like Walmart, Target, Kohl’s and Abercombie & Fitch Co. all saw total inventories fall and their rate of inventory turnover increase year-over-year, reflecting leaner operations this year, according to analysis by sister publication Supply Chain Dive.

Shay said there are several reasons behind the improvement in inventory metrics. On the one hand, the “hangover” from a supply-demand mismatch during the pandemic — when retailers could not get goods in stores at the time customers needed it, and often received them later — seems to have played itself out, according to Shay. But changes in consumer spending patterns due to rising interest rates and earlier shopping seasons also played a role, leading retailers to adjust their stocking patterns in response by bringing inventory in earlier.

“I think there's been an enormous amount of learning that's taken place, much more sophisticated approaches than even just a couple of years ago,” Shay said. “As good as most retailers thought they were at this, I think they've gotten even better out of necessity.”

Kohl’s CEO Tom Kingsbury called out those improvements in a August earnings call.

“As we implement new planning and allocation processes, we’re becoming more responsive to the customer’s demand,” Kingsbury said. He specified Kohl’s is now “operating with additional open-to-buy to chase trends and minimize risk, maintaining better in-stock levels in core basics, and improving inventory flow from our distribution centers to the selling floor.”

During the briefing, Shay said retailers’ new stocking patterns are among the reasons the NRF and Hackett Associates predicted loaded container imports at the nation’s major seaports had already peaked for the year back in August. He added most retail inventory for the fall shopping season is already in U.S. stores, warehouses or other distribution points.