In 2022, almost all retailers from Wal-Mart to Gap are facing the problem of excess inventory. Their consumers are suffering from inflation and most of them no longer choose to buy the products that were popular during the new crown epidemic. Now, after more than half a year of destocking, at the beginning of 23, the situation seems to be turning around!
SUMEC and Amazon signed a new textile cooperation agreement, with the order amount exceeding 10 million US dollars
There are signs that since the beginning of this year, the gradual smoothing of channels and the process of destocking have begun to make terminal retailers begin to make long-awaited purchasing actions.
Recently, a textile company under SUMEC Co., Ltd. signed a new textile cooperation agreement with Amazon. The order amount exceeds 10 million US dollars, which is a good start to the new year! It is understood that the cooperation project signed between the textile company and Amazon covers multiple advantageous categories of home textile products, focusing on green and low-carbon features. They all carry MADE IN GREEN certification labels, and have unique product IDs and QR codes.
At the same time, according to data released by the U.S. Department of Labor on January 12, the U.S. Consumer Price Index (CPI) fell by 0.1% month-on-month in December 2022 and increased by 6.5% year-on-year. This is the sixth consecutive month that U.S. inflation data has declined. Updated data from CME’s “Fed Watch” shows that the probability of the Federal Reserve raising interest rates by 25 basis points in February is 99.8%. Overall, U.S. textile and clothing imports have increased steadily year-on-year this year. Under the influence of the Federal Reserve’s hawkish interest rate hikes, inflationary pressure has eased slightly, and the rapid downward trend on the downstream consumer side has gradually stabilized. As international macroeconomic pressure weakens, China’s textile and apparel exports are expected to maintain steady growth.
Retailer inventory levels have begun to decline or may return to normal this year
According to the latest data from CICC, the current total inventory scale in the United States far exceeds the pre-epidemic level. Fortunately, the year-on-year growth rate of total inventory has peaked and declined after June 2022, and the inventory-to-sales ratio has basically remained at 1.3 in recent months. Nearby (the average level in 2019 was 1.42), it shows that sales demand remains resilient and has not yet caused the inventory-to-sales ratio to rise significantly.
In addition, although the retailer’s inventory scale is also higher than before the epidemic, the inventory-to-sales ratio remains at 1.15, basically the same as 1.18 before the epidemic, and the inventory scale and inventory-to-sales ratio will begin to fall from September 2022. Wholesaler inventories are significantly higher than the trend line and are still rising, indicating that channel inventories are still under great pressure.
Source: Haver, CICC Research
The overall destocking may return to normal by the end of the third quarter of 2023 (around October). Due to the low inventory scale, retailers may begin to return to normal levels in early 2023, manufacturers may destock in the fourth quarter of next year, and wholesalers may not complete destocking until the end of 2024 due to the largest accumulation of inventory.
Judging from historical experience, since 1994, the United States has experienced a total of 9 complete inventory cycles. A complete cycle lasted an average of 37 months, and active destocking took an average of 13 months. This round of active destocking will start in the third quarter of 2022 and will continue until around the third quarter of 2023 based on historical experience.
Active destocking is the result of falling demand, which will further suppress corporate profit margins and increase growth pressure. The particularity of this cycle is that the mismatch between supply and demand is more obvious and inventory accumulation is large, but short-term consumption resilience is still strong. Whether subsequent recessionary pressure will bring about a greater drop in demand will also affect the speed of destocking.
Overall, the current inventory pressure is mainly concentrated in channels, the inventory-to-sales ratio is basically the same as before the epidemic, and sales demand remains resilient for the time being. Retailer inventories will begin to fall in September 2022, and destocking is expected to be completed in early 2023.