- The total business inventories-to-sales ratio dropped to 1.37 in June, falling from its April peak of 1.67 to slightly below pre-pandemic levels, according to the latest numbers from the Census Bureau's monthly inventory and sales report released last week.
- Retailers have been able to draw down their inventories-to-sales ratios more than manufacturers with a ratio of 1.2 compared to 1.42, respectively.
- Increased sales and falling inventories contributed to the drop. Sales were up more than 8% in June, while inventories fell more than 1% compared to May, according to the Census.
The April spike in the inventories-to-sales ratio coincided with a 14% month-over-month decrease in sales as stores across the country shuttered due to stay-at-home orders. With sales down, inventory wasn't moving.
But economies have largely reopened through the summer and some retailers have been able to draw down their inventories.
"To what extent this has happened varies pretty dramatically by retail segments," said Scott Hoyt, the director of economic research at Moody's.
Motor vehicle and parts inventories were down 7% in June compared to May. Department store inventory was down nearly 8% over the same period.
Meanwhile, food and beverage retail inventories grew in June compared to May as the sector restocked to meet continued sales growth year over year.
Department stores and clothing retailers had the highest inventories-to-sales ratios in June at 2.1 and 3.1, respectively. Food and beverage was the only sector with a ratio below 1 at 0.71.
This highlights the trends that have continued throughout the pandemic: Apparel retailers are struggling to make sales while grocers are having a difficult time staying stocked, Hoyt said.
The numbers for clothing retailers are still "glaringly bad," but things have improved slightly with reopenings, and "they're not nearly as bad as they were," he said.
The environment has led to tough decisions for retailers, many of which have canceled orders and instituted markdowns to try to get products moving off the shelf.
"We're being very cautious how we're buying for based on what we're seeing in our order books," PVH CEO Manny Chirico said on an earnings call in mid-June.
As the calendar begins to inch closer to peak season, uncertainty lingers. The seven-day average of COVID-19 case numbers is again trending downward but remains higher than it was in early July, according to the Centers for Disease Control and Prevention — meaning consumer demand and buying habits are still unpredictable.
"I think it's likely to be more volatile, to be honest with you," Hoyt said of the inventories-to-sales ratio for the remainder of the year. "Right now, it's unclear what the level of sales are going to be."
But there are early signs that the retail situation is beginning to feel a bit more routine.
"We've had a significant level of in-stock issues that happened late in the first quarter and early in the second quarter," Walmart U.S. CEO John Furner said on the company's earnings call Tuesday. "But we do think that our inventory levels are now normalizing. We do still have pockets of in-stock issues that are both related to the supply chain and then other factors that have been caused by the pandemic."
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