As tariffs threaten to raise prices, a potentially existential question is facing retailers: How much inventory is too much or too little in such an uncertain environment—and is it worth squirreling away a little extra if higher costs are on the horizon?
Recent earnings reports of retailers and logistics companies show that some are choosing to stock up just to be safe. Apple and Amazon, for example, both said they had made forward purchases of goods in the last quarter.
“We’ve done some forward buys of inventory where we're the first-party seller,” Amazon CEO Andy Jassy said during its Q1 earnings call. “Our third-party sellers have pulled forward a number of items so that they have inventory here as well.”
Meanwhile, Prologis CFO Tim Arndt said the warehouse operator had spoken with 300 of its customers and found they were “accelerating shipments where possible,” and there was “urgent demand for overflow space.” Speaking with a prominent third-party logistics partner, the company also found that its utilization rate had jumped from 83% to over 90%.
Beyond these anecdotes, macro-level data paints a similar picture. The US trade deficit increased 14% in March, up from a 6.1% drop in February, and imports of consumer goods increased by $22.5 billion, up from just a $2.4 billion increase in February.
Federal Reserve Board Governor Adriana D. Kugler also said in a recent speech that private domestic final purchases (PDFP), a measure of private-sector demand, increased 3% in the first quarter, which “likely reflects some pull-forward of purchases by businesses and consumers to get ahead of tariffs.”
And now with a 90-day pause on the steepest tariffs on China, some trade experts are predicting e-commerce platforms such as Shein and Temu will use the reprieve to stock up, potentially adding to the overall uptick in imports and inventory.
The princess and the pea: But how much stuff are retailers actually buying ahead, and will it make a lasting dent on inventory levels in what could be a volatile year ahead?
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A new report from the Bank of America Institute says that’s not likely. While acknowledging the import surge, the research firm pointed to other data points which show retailers are remaining cautious, including a decrease in retail sector payments to transportation and shipping companies and a sharp drop-off in May of inbound container ships to the port of Los Angeles.
Per the same report, retailers’ inventories are already relatively lean, with the ratio of inventory to sales levels across most sectors still below pre-pandemic averages.
“It’s fairly plausible they’ll end up in a situation where they have relatively lean inventories over the next few months, not an excess,” David Tinsley, senior economist at Bank of America Institute, told Retail Brew.
Daniel Hackett, partner at Hackett Associates, an international trade consulting firm, agreed these extra built-up inventories might not be long for this world. “We are projecting that by July, those surpluses that were built up will have been depleted, and so there is going to be some impetus to import regardless,” he said.
Hackett explained that the tariff situation is very different from post-pandemic economic conditions, which left a number of retailers saddled with excess inventory, in part because retailers are now better prepared and have more resilient supply chains. They are also planning for something more predictable (tariff-induced price increases) relative to the sudden supply-chain snags which defined the pandemic era.
Still, imports could be headed for a cliff regardless as many retailers pause or cancel orders in response to uncertainty. In its Global Port Tracker report, Hackett’s firm joined the National Retail Federation in predicting that from June through the fall imports will fall at least 20% year over year, with volume potentially declining over 10% year over year.
“Economic uncertainty has increased, and when economic uncertainty increases sometimes doing nothing is the best option,” Tinsley said. “You might see firms being a bit hesitant to invest or hire, and I think probably the same is true on inventories as well.”