Costs have been falling for retailers — some retailers, at least
Costs have been falling for retailers — some retailers, at least
We’ve heard from a lot of retailers about their sales this week. Thursday morning, we got earnings from Walmart and Macys. Earlier this week, we heard from Target and Home Depot.
And the takeaway, thus far, has been pretty consistent: Consumers are getting a little more cautious. They’re pulling back on discretionary items and focusing more on essentials.
But retailers also gave us a look at their costs — how much they’re spending on inventory, labor and logistics. And the takeaway there isn’t consistent at all. Whether retailers’ costs are rising or falling depends on which retailers we’re talking about.
Some parts of the retail business have become cheaper lately, like moving merchandise around, said Jason Miller, a professor of supply chain management at Michigan State University.
“Contract prices for dry van truckload shipments — that’s going to be what most retailers are moving their freight with — those have declined over 20% year over year.”
Miller said those lower freight costs help everybody.
But some retailers have made their own investments in supply chains to bring down their costs even more.
“Many of the retailers — Walmart’s a good example — have dramatically expanded the size of their private fleets,” Miller said. “So they’re handling more of their deliveries themselves.”
Plus, many of the products that certain retailers sell are costing them less, said Brian Yarbrough, consumer research analyst at Edward Jones.
“So Walmart mentioned this morning they’ve seen a drop-off in dairy prices, egg prices, chicken prices,” he said.
But other costs for retailers remain high. A big one is wages. Yarbrough said Home Depot is one example.
“[Earlier this year] Home Depot came out and mentioned they were going to invest a billion dollars in their wages and benefits for their employees,” he said. “And so that’s going to be a headwind, because it’s a higher expense.”
But the timing of wage hikes matters too.
Mickey Chadha at Moody’s Investor Service said Target, for instance, didn’t see a big jump in costs last quarter in part because it started raising wages to attractive levels a while ago.
“A lot of their employees, their wages were pretty competitive,” he said. “And so they don’t need to do a lot more incremental increase in wages as well.”
Going forward, the real determining factor of whether retailers will be able to lower their costs is how much inventory they have on hand, said Bryan Eshelman, managing director at AlixPartners.
“Those that potentially have excess inventory are having to spend more on markdowns,” he said.
Eshelman also said retailers with too much inventory will have to bear the cost of discounting throughout the holiday season.
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