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- April 23, 2015 -

 
       
   

Supply Chain Graphic of the Week: US Retail Inventories

Recent Reversal in the 20-Year Trend in Towards a Lower Inventory-to-Sales Ratio

 
       
   

By SCDigest Editorial Staff

 
   

 

We like to look at the inventory-to sales-ratio periodically, which the US Census Bureau reports on monthly both in aggregate and then individually for the retail, wholesale, and manufacturing sectors.

Respected transportation sector analyst John Larkin of Stifel (and regular SCDigest guest columnist) recently published a research note taking an overall look at the US economy, which included some data on retail inventories levels over the past 20 years, as shown in the graphic below.

 

As we have often said, trends in retail in the end impact almost every company in addition to retailers themselves, obviously consumer goods manufacturers but also suppliers to those manufacturers, transportation carriers, 3PLs and more.

 

 

Source: John Larkin, Stifel

 

As Larkin writes, "Retail inventories are a big part of the economy and they are a big part of transportation. When inventories are low, they need to be replenished and that creates a lot of desperate times in transportation demand."

 

As can be seen, the blue line in the foreground shows that the inventory-to-sales ratio in retail has been declining pretty steadily for the last 20 years, with the exception of 2008 when the recession hit full force and retailer were caught with too mcuh inventory relative to quickly declining demand. But most recovered quickly, shedding inventories to put things back on the downward trend line within one year.

 

The retail inventory-to-sales ratio reached a low sometime during early 2012, but has been slowly increasing since then, mainly due to the fact that interest rates are so low (meaning the cost of holding inventory is less), but also perhaps due to increased optimism on the part of retailers as well.

 

We doubt however that we will see much more uptick in this key metric. Those focus on inventory and the tools to manage it are just too powerful today.

 

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