U.S. retailers fill store shelves with leftover holiday inventory

By Arriana McLymore and Doyinsola Oladipo

NEW YORK, NY (Reuters) – The Ghost of Christmas Past haunts U.S. store shelves, sales floors and stockrooms this year.

Retailers were sitting on $548.8 billion of inventory in July, a 21.6% increase from last year, according to U.S. Census data.

With less than 10 weeks to go before Christmas 2022, major retailers including Costco (NASDAQ:), Kohl’s (NYSE:) and Express Inc. are peddling holiday sweaters, artificial trees and other decor that had been stuck in transit or packed in warehouses during the supply chain crisis that threw a wrench into Christmas 2021.

While holding on to last year’s goods is not ideal for retailers, discounts will be a boon for consumers under pressure from inflation, which hit 8.2% in September.

“This year is going to be a fantastic year to buy a tree,” said National Tree Company Chief Executive Officer Chris Butler. “Everybody’s going to be trying to get through the inventory that they have to make sure they clean out a little bit before the 2023 season.”

Last year’s holiday-themed pajamas are available on Kohl’s shelves for 25% off at $39. And clothing retailer Express Inc. is putting its excess holiday items and New Year’s Eve dresses in its outlets, the company said during the Wells Fargo (NYSE:) Consumer Conference in September.

In past years, retailers spent heavily to bring in hard-to-get toys, shiny gadgets and trendy clothing that their merchandise buyers felt would bring shoppers into stores.

But this year, some cut back on their purchases of new merchandise while others focused on clearing old inventory.

Retailers are betting that shoppers won’t mind picking through 2021’s discounted decor and styles. But Liza Amlani, principal at consultancy Retail Strategy Group, said there’s a chance that shoppers will lose interest when they feel that some of last year’s on-trend merchandise is “no longer relevant.”

Even with retailers slashing prices by up to 40%, shoppers so far this year are hesitant to make major holiday purchases.

Online prices for electronics, toys and apparel were down in September, according to the Adobe (NASDAQ:) Digital Price Index, as retailers offered deals to entice early holiday shoppers and rid themselves of inventory before Black Friday, the day after Thanksgiving when many Americans traditionally shop for gifts.

Increased markdowns and slowed consumer demand may hurt companies’ gross margins, said Cowen retail analyst John Kernan in an October note. Excess inventories also add to retailers’ storage costs.

Kohl’s and Express reported gross margins of 33.05% and 39.6% on their second-quarter earnings calls in July, while Costco’s fourth-quarter margins came in at 11.84% in August. Analysts are expecting gross margins to shrink for each of the companies next quarter, according to data from Refinitiv.

Costco is stocking its floors with yesteryear’s faux firs.

“If you add in the cost of holding them and a little cost of interest, I think they’re still a little cheaper than the ones we added to the inventory this year,” Chief Financial Officer Richard Galanti said on a September call with investors.

“The good news,” he said, “is that (Christmas trees) don’t really change in style.”

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