Inventory Levels At Warehouses

Will:
All right, everyone. We are back with another episode of Safety Stock. I am pleased to have Dan Magida. On the other side, I am Will Davis, and we’ve gotta find episode today. It is August 2nd. And Dan, with the beginning of August, do you know what that means?

Dan:
I do back to school, baby,

Will:
Back to school kids, get your book bags, that’s

Dan:
Get

Will:
Ready, sharpened, get your chance,

Dan:
Get your Jan port, your three ring binder. If they still do that stuff or your new iPad,

Will:
Mm-Hmm, your trapper folders that, you know, have the Velcro that you can open up and stick them, all your, your

Dan:
Homework planner, where you write things down for one day and then you never open it ever. Oh, that was more of me. I would just memorize the homework more than write it down. But

Will:
There you go. And for all you kids out there who just stuff, random pieces of paper in your B bag and don’t really have any filing system. I feel you. Yeah. But I’m saying change now,

Dan:
Summer readings, if you have to do ’em do ’em but that’s not what we’re here to talk about though.

Will:
No, we are not. We are actually talking about inventory levels at warehouses and August being a very big shipping month.

Dan:
Yeah, peak season for ocean shipping. Cause it’s the start of holiday season.

Will:
That is right. So Dan, we an interesting article that came out and I think the big takeaway here was that, you know, people specifically retailers are slashing some of their forecast in terms of their sales and their profitability, but their warehouse capacity is tight and that they are still in that mode of let’s make sure we have inventory levels appropriately placed so that if people are wanting to buy or as the holiday season comes up, we can support them.

Dan:
Yeah. So exactly right. Like durable goods, merchandise, like appliances, they’ve all are pretty much taken up these warehousing space and you’ve seen the, the latest national vacancy rate for us for warehousing is around 3%, but by the ports. So your long beach, your Los Angeles, your Savannahs, I guess, New Jersey Newark area sub 1%. So warehousing is gonna be hard to find for people who are gonna bring in now, especially in August when that arrives to port call it mid ends of September. You still have two months pretty much before, I guess, black Friday where you’re gonna store everything. If there’s no vacancies available for your goods.

Will:
Yeah. It’s, it’s a good question. And I think part of the, you know, as you’re a, as you’re a brand and you’re planning for this number one, you know, it’s based on where you are and your journey as a brand in that if you’re an established brand and you already have your warehousing set up, you know, this is one of those things where you’re working pretty closely with your retailer and, and you’re having to monitor what you have coming in and going out pretty closely. Because if you’re getting to the point to where you’re almost at capacity at where you are from a warehousing space, obviously something has to move one way or another. So I think this is what we’re gonna continue to see is that for established brands, you may see more price cuts coming through because they need to move those goods.

Dan:
Yeah. And like, anecdotally I, and I also preface with I wasn’t at this company for a very long period of time PE time, but those during, and this was over three years ago, but they had bikes and treadmills. And the biggest thing was finding what even back then was finding space to store everything. Just because the demand for the holidays that what was predicted. And this was back in like 10 months or nine months before the holiday time, which is finding storage space to store everything. Cuz they knew that the later you delay this challenge of finding space, the hard is to possibly find storage. And these are obviously these are massive. I guess you can work out equipment appliances that, that take up a lot more space than maybe some of the brands that like we work more closely with that take up smaller real estate, but it’s really important to plan. And like one thing that I thought was interesting was like Dick sporting goods, they report at the end of, as of April 30th, their inventory is up 40% from a year earlier. Now we call the show safety stock, but 40% is a pretty now they describe it as healthy, which I, I don’t know the inner workings of, of that company, but I don’t know for a live brands out there, if they can take the risk in the working capital to put up 40% of inventory there.

Will:
Yeah. And I think, you know, when we talk about that pendulum swing, you know, we were four or five years ago, we were on the very, very verge of very edge of the just in time. Yeah. Pandemic hit, you know, as you start to move through and you see some of the challenges in shipping and labor, et cetera, I think we’re seeing that inventory swing. As we continue to talk about people having goods, ready to support sales as it comes through. And I think we’ll see that up to a point. And then there will be this precipice where to your point brands needing working capital brands, needing the ability to move and bring on new goods. I think we’re going to continue to see with inflationary pressures here, people finding the need to cut down on the cost in order to get things out, open up inventory space in order to bring new things in and support it.

Will:
And then they’re going to adjust accordingly. You and I both know Dan that some of the brands that we’re supporting today, some of them are very, very active with working with the targets of the world and saying, Hey, we will proactively cut some of the deliveries we’re sending to you because you’re having inventory challenges and they’re doing them a solid now with the hopes that it continues to expand that partnership, the people that don’t have the ability to do that because maybe they’re a younger, smaller, less established plan or they’re more focused on eCommerce. Those are the people right now that are gonna be more affected by this because eCommerce is more expensive to service. You’re competing with a lot more people and the economies of scale is the tougher sell as well. So when you think about those e-commerce brands, those are really the ones where you’re having to have the conversation. Now, do you have the warehouse space, both given what you’re bringing in today, but also if you’re planning to grow, does your warehouse have the ability to grow with you?

Dan:
Yeah. And actually I think it’s interesting. We, we talk about is peak season now for ocean shipping. So I guess spot rates for ocean shipments and we’re gonna use year up to us trade route has, is up 2%. So it’s E over $8,000, but China now it’s the us east coast. We’re looking at $10,000 for containers, which is starting the increase. I mean, it’s been higher. It was higher months before, but you would think that because the, I mean, the price is obviously going up, but in terms of like, if you look at imports, it actually decreased the last couple months of what’s been coming in from, from China. So just if you were just think about in terms of like, alright, in theory, if the, if it orders are decreasing, you shouldn’t be able to create more container availability, but then you look at what’s happening in the ports of Oakland there’s strikes going on and there’s still congestion and backlog.

Dan:
So even with a decrease in cargo deporting from these Chinese ports, we’re still tight on container availability. So we still have this log jam that will probably continue supports are actually gonna get, are gonna get more congested now, or shouldn’t say now, but in the next few weeks and months with this peak holiday season, or will it because you have retailers who have too much inventory already storing and warehouses, so it’s gonna be a weird, it’s gonna be interesting to see what happens. I mean, we’ve seen people already plan some brands here already obviously planning their holidays, which you have to get ahead of the

Will:
Curve. Yeah. If you, if you

Dan:
Aren’t, do you have any orders placed now?

Will:
Stuff is, yeah. If you haven’t started shipping or about to ship for the holidays, you’re border

Dan:
Domestically, you have time still. But if you’re, if you’re importing, if you have not cancer asked this enough, if you have not placed an order yet, and you’re anticipating a surge for the holidays, get that order in.

Will:
If you wanna share with us some of the things that you’re seeing out there, if you’re planning on any inventory cuts, or if you’re planning on pulling back on some of your volumes, we love to hear it. It’s interesting to see what people are planning to do. You can reach out to us at hello@anvyl.com. That’s A-N-V-Y-L.com or, you know, if you want to tell us what your kids are gonna plan for back to school, excited to hear that as well.

Dan:
How’d you guys next time.