Dive Brief:

• The seasonally adjusted inventory-to-sales ratio dropped to 1.26 in January, the measure's lowest level since 2012, according to the latest figures from the Census Bureau.
• Wholesale and manufacturing inventories remained nearly flat, changing less than 1%, compared to the same month in 2020. But retailers saw their inventory fall nearly 6% YoY in January.
• The nearly flat and decreasing inventory levels at U.S. companies are being met with increased demand. Sales are increasing YoY for manufacturers, retailers and wholesalers by nearly 3%, 13% and 6%, respectively, causing the inventory to sales value to dip.

Dive Insight:

Companies across industries have been dealing with supply chain bottlenecks for months now, and they're starting to result in lower inventory for some companies at a time when they'd normally be bringing in items for spring collections.

Foot Locker has seen this play out, reporting a 24% YoY drop in inventory in its most recent earnings call. The issue for Foot Locker is port congestion. High demand for goods has increased the demand for ocean shipping, which has made for congestion issues at some of the nation's largest gateways.

"There's a lot of concern right now, and people are very nervous," American Apparel & Footwear Association Senior Vice President of Policy Nate Herman said in an interview last week.

Retailers are experiencing high levels of demand, which is expected to continue as a new round of stimulus lands in bank accounts.

"And just as all that is happening, we're having this huge crisis at the ports and having these huge delays in getting their product in," Herman said.

If retailers are unable to get inventory in time for the spring or summer season, then it is likely to result in lost sales, according to Johnathan Foster, a principal consultant at Proxima.

"For the most part, consumers can find options," Foster said. "And so, retailers that aren't adjusting, they're losing out, and it'll be really hard for them to capture that sale again."

But it's not port congestion alone that is giving retailers a hard time when it comes to inventory, experts said.

"The amount of disruption is historic in nature," Foster said. "It's ocean containers; it's chassis shortages; it's vessel space; it's dray capacity."

He noted that trucking networks have also been strained and that warehouse capacity is full, both of which makes it harder for new inventory to move where it needs to go.

The inability to get inventory on time in highly seasonal retail industries means either not selling the product at all or selling it at a "deep discount," Herman said.

He said that all of AAFA's members had seen their inventory decline compared to last year, "at least in the low double digits," in recent months.

Companies have been dealing with port congestion for months now, and some should have already made appropriate adjustments to their lead times or sourcing, Foster said.

Foot Locker said it was working with its suppliers on alternative routing in an attempt to speed up its network. And some shippers are looking to alternative ports to avoid congestion altogether.