Has the Pandemic Prompted Inventory Discipline in Retail?

For decades, the holiday season has been synonymous with steep discounts and consumer bargains. But this year, as we begin to crawl out of the pandemic, things might look a little different for your average shopper. The sales we have seen in the past will be gone, replaced by much more modest offers, according to Mari Shor, a senior equity analyst at Columbia Threadneedle Investments.

That’s because, during the pandemic, disrupted supply chains forced many retail companies to shrink their inventories and carefully watch their supplies. “They were managing inventory very tightly, which allowed them to pull back on promotions and markdowns, which in effect raised prices across the board,” Shor said.

Shor says this rise in prices may have benefited some retail companies in terms of their gross margins. Thus, even now, as supply chains have gone back to normal in some industries, she still expects many companies to move forward with their pandemic pricing levels.

“Their recent experience is giving them the confidence to say that they do have pricing power, and they will continue to take price strategically,” Shor said.

Despite this price increase, many analysts still forecast success for the retail industry. The consulting firm Deloitte has predicted that holiday sales will increase by 7% to 9% this year, and ecommerce sales in particular will rise a projected 11% to 15% year over year.

While consumers might find the lack of sales frustrating, it could be a potential opportunity for investors. “I see the most upside in some of the recovery names where the stocks have pulled back, especially in beauty and handbags and traditional apparel,” Shor said.

She also sees potential opportunities in European luxury goods. “They are not as exposed to supply pressures as some of the US brands that are sourced in China,” Shor noted. Luxury bags have seen stark price increases this year, with major brands such as Louis Vuitton and Chanel announcing both announcing price increases for many of their items. The price of one of Louis Vuitton’s most popular bags went up by 25% in the spring.