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 Moving the stale stock of mostly clothes, accessories and
electronics is likely to lead to bigger discounts and steeper
markdowns, which in turn would reduce chances for a swift profit
rebound.
Tepid consumer demand for small discretionary purchases is likely to
compound the problem, analysts said.
Disappointing sales by some of the biggest retailers including
Target Corp, Macy's Inc, JC Penney and Kohl's Corp are likely
to lead to even more promotions and discounts to woo customers
Target's shares fell to a 52-week low on Wednesday after its sales
missed estimates.
Macy's stock fell as much as 15 percent on Wednesday after it
reported a drop in sales and cut guidance.
Target Chief Executive Brian Cornell, speaking after the company
released its earnings, cautioned investors about the impact of the
stock build-up.
"Many of our competitors are sitting on meaningful excess inventory,
which we expect will extend the very intense promotional environment
into the months ahead," he said.
According to a report by analytics firm Dynamic Action, retailers
sold 4 percent fewer items at full price in the first quarter than a
year ago, while the percentage of promotional products ordered
online jumped 63 percent.
Such orders reached a record high in March, when they soared 86
percent from a year ago, the report said.
The jostling to sell excess inventory over the next three months
could hit sales growth, said Brian Yarbrough, an analyst with
financial services firm Edward Jones.
"Right now retailers have started cutting back on deliveries for the
third and fourth quarter," he said, referring to new inventory
orders. That could leave them understocked for the end of the year,
when most retailers make as much as 40 percent of their annual
sales, he said. Some retailers might be able to avoid slashing
prices.
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The world's largest retailer, Wal-Mart Stores Inc, bucked the trend and posted
surprisingly higher sales on Thursday as lower-income consumers spent more. That
should mean Wal-Mart sold much of the stock earmarked for the quarter, easing
the pressure to offer steep promotions and discounts, analysts said.
Other bright spots included home improvement chains like Home Depot and Lowe's
Companies Inc, which have benefited from a housing recovery; and off-price
apparel retailers like TJX Cos, which offer low-priced branded apparel and
accessories.
"Real disposable income growth has remained weak and that has contributed to the
growth and outperformance of off-price chains and the continued slowdown for
department stores," said Craig Johnson, president at retail consultancy Customer
Growth Partners.
Off-price chains such as Ross Stores Inc <ROST.O> and Burlington Coat Factory
had been a negligible force in the industry until a few years ago. But as
consumers try to get more bang for their buck, chains that offer quality branded
goods at lower prices have become increasingly popular.
(Reporting by Nandita Bose in Chicago; Editing by Jo Winterbottom and Richard
Chang)
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