Get ready for sparse clearance shelves – retailers have fewer leftovers to discount

shopping appliances discount sale
  • Retailers are having a difficult time keeping shelves fully stocked.
  • The shortages leave fewer items like clothes or appliances for clearance racks.
  • That makes it even more difficult for consumers to find relief from rising prices.
  • See more stories on Insider’s business page.

If your shopping trips seem to be a bit more expensive lately, it’s likely that your receipt shows something missing: discounts.

Likewise, if your visit to any store typically includes a lap past the clearance shelves, you may have noticed the pickings getting slim.

“Retailers facing tight inventories are having a tough time keeping shelves stocked with new stuff,” Axios Markets’ Sam Ro noted. “This means there’s less stuff that’ll get marked down and moved to clearance sections.”

In other words, shortages of cars, clothes, and computer chips translates into a shortage of deals, too.

That may sound obvious when stated plainly, but surpluses and discounts have traditionally been a fact of American retail that shoppers could take for granted. There are even entire business models like TJX and Overstock.com built around it.

Data released last week by the US Census show that while sales have ticked up, inventories have not, leaving retailers in many sectors with a lot less on their shelves than they would like.

Across all businesses – manufacturers, wholesalers, and retailers – the inventory-to-sales ratio reached a multi-year low in May of 1.26, which means they have about five weeks of product available, compared with a pre-pandemic trend closer to six weeks.

The effects are more dramatic among retailers, which have closer to four weeks of inventory on average.

Certain retail categories are a lot tighter this year than they were last year, namely: vehicles and parts; furniture and appliances; clothing and accessories; and department stores.

Clothing stores saw the biggest swing as the pandemic saddled them with more than six months of stuff to sell in May 2020, and now they have less than two months’ worth.

Bargains are unlikely to return any time soon, since delivery times are getting even longer, making it that much harder for stores to stay stocked ahead of consumer demand.

The increase in suppliers’ delivery times also suggests that prices will continue to go up this summer, as the metric is commonly used to predict inflation, per IHS Markit’s Chief Business Economist Chris Williamson.

With any luck, you might have a promotional coupon that’s still valid.

Read the original article on Business Insider

3 predictions for how company operations will change post-pandemic, according to an operations expert

woman flight airplane mask
Airlines will need to retool their pricing model after a year of unpredictable travel.

  • Marty Lariviere is a professor of operations at the Kellogg School of Management at Northwestern.
  • He offered three predictions for how operational changes will stay the same or shift in the future.
  • Stores will keep minimal SKUs, supply chains will snap back to normal, and travel pricing will vary.
  • See more stories on Insider’s business page.

As growing numbers of people get vaccinated and the economy begins to pick up speed, many companies are – once again – assessing how their operations will need to adapt for the future.

As they are busy sorting through which operational changes will endure and which will fall by the wayside, Marty Lariviere, a professor of operations at the Kellogg School and coauthor of The Operations Room blog, expects fewer seismic changes going forward than many may be envisioning.

But that’s not to say it will all be business as usual.

“We’ve already had something of a return to normalcy,” he said. “But there are aspects of convenience – like click-and-collect grocery and grocery delivery – that are not going away.”

Here, Lariviere offers three predictions for the next year and beyond.

Read more: Remote work, bitcoin miners, and over-ordering have led to a PC parts shortage that’s driving up prices for everyday electronics – and likely to last into 2022

Consumer-goods companies will keep it simple

In a stable economy, product variety is a hallmark of consumer goods: businesses lure customers with choice and compete on new offerings.

But the pandemic shrunk variety across consumer goods.

Both online and brick-and-mortar stores stocked fewer SKUs, a trend that extended across product categories early in the pandemic. Grocery stores, for example, reduced their average number of items by 7.3% early in the pandemic. Producers dropped less-popular products to streamline production – a common cost-reduction strategy.

“You lose production capacity every time you change things like scent, size, or packaging,” Lariviere said.

When customers just want common items such as disinfect wipes in stock, whether they come in lavender or lemon scents matters less than availability. Maintaining a wider variety of products also makes forecasting demand and inventory management more challenging at a time when companies are striving for efficiency.

Lariviere and others predict that this streamlined trend is likely to continue, at least for the near term. Customers have become accustomed to smaller product choice, he said, while stores will be unlikely to diversify beyond what they know already sells.

“Over time, wider selections might come back. But for right now, unless you can really convince stores that it’s going to drive a lot more demand, I don’t think they would be anxious to take on the complexity of having more variety,” he said.

Supply chains will start to look a lot like they did pre-pandemic

Regional shortages and panic buying are common before storms or natural disasters. The global nature of the pandemic meant that every region shared that strain. And early in the pandemic, runs on certain products – think toilet paper and pasta – left many consumers with the impression that global supply chains are vulnerable.

But most supply chains ultimately proved resilient. In Lariviere’s view, rather than bolstering inventory to safeguard against future shocks, companies will likely return to something close to business as usual.

“We may see some tweaking around the edges, but no dramatic sea change,” he said. “It’s too expensive.”

The rise of just-in-time supply-chain management means companies have little incentive to produce excess inventory, only to store it in a warehouse until the next crisis.

“In a steady state, people like cheap stuff,” he said. “Would you be willing to pay an extra 20 cents on a package of paper towels if it meant that there was, somewhere, a big inventory or idle production capacity that would be called upon in an emergency? Unlikely.” In fact, the paper company Kimberly Clark is reporting lower toilet paper sales, with many consumers now working through their home inventories.

So Lariviere thinks there will always be some fragility in the system – and thus the potential for shortages – especially for commodities and consumer goods.

“Supermarkets and Target and firms like that are always first and foremost going to be competing on price,” Lariviere said. “They’re not going to be in a place where they can sustain carrying lots of access inventory for terribly long.”

Even items such as PPE fall under some of the same pressures, which may leave us vulnerable to the next public-health crisis, unless policymakers intervene.

“It’s hard to imagine a national stockpile without government subsidizing production and storage,” Lariviere said. “Hospitals are already under cost pressures, so they can’t afford to stock up on excess supplies. That price pressure is not going to go away.”

The travel industry will struggle with pricing

Much has been made of the pandemic’s impact on the travel industry. But according to Lariviere, one of the industry’s greatest challenges for the foreseeable future has largely fallen under the radar: how to price their services.

For decades, travel companies – especially airlines and hotels – built business around dynamic pricing and revenue management, or adjusting prices based on historical data and timing. Armed with extensive data on sales and customer habits, airlines have mastered the practice of demand forecasting. As a result, customers with neighboring plane seats often pay different prices for the same service.

“The magic is selling some seats at $300 early while making sure there are seats to sell at $2,000 later,” Lariviere said.

But the last year has upended these practices. Airlines and hotels have gone from being able to precisely pinpoint demand to having to guess. So while there may be a lot of pent-up travel demand among customers, efficient revenue management is going to be tough.

“We now have a year with no data, and the years of data before the pandemic won’t guide these companies terribly well for the next two years,” Lariviere said.

Consider the uncertainty facing airlines, which have reason to fear that business travelers, their most lucrative customers, may be slow to return at pre-pandemic levels. (The Global Business Travel Association forecasts it will take until 2025 for business travel to fully recover.) Consumer behavior in leisure travel is also highly uncertain. The CDC has issued travel guidance for fully vaccinated people, but variants continue to spread and children remain unvaccinated, so consumer preferences may take time to catch up to public safety.

All this means that the traditional model of “sell cheap early and expensive late” may still work – or it might need to be tweaked.

“Airlines and hotels are going to have to be ready to retool their pricing very quickly,” Lariviere said. “Forecasting demand at different price levels, that’s going to take a while to get straightened out.”

Read the original article on Business Insider

Here’s how fast homebuilding is catching up to the record-low number of houses for sale

UBS STARTS
Source: UBS.

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

“We may have overestimated the immediate storm-rebound by a little, and so expected more rebound to come in starts in April,” UBS economists led by Samuel Coffin said in a note. “But with permits on target in March, we continue to see the underlying trend in single-family activity at about a 1.2 million unit annual rate.”

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

Read the original article on Business Insider

The hottest month ever for US housing could be just the start of a more sustainable rally

home housing residential construction worker builder
Construction workers are pictured building a new home in Vienna, Virginia, outside of Washington, October 20, 2014.

  • March saw home sales accelerate further and price growth hit its fastest rate since the mid-2000s.
  • The rally isn’t sustainable, but a rebound in building will allow for months of healthy growth, Redfin said.
  • Millennial homeownership is on the rise and should spur the construction of millions of homes per year.
  • See more stories on Insider’s business page.

The US housing boom wasn’t built to last.

What began as a hefty uptick in home purchases evolved into an all-out buying spree in a matter of months. Americans taking advantage of low borrowing costs and looking to flee cities for suburbs snapped up homes at a rate not seen since the mid-2000s housing bubble.

It didn’t take long for strains to crop up. Homebuilders struggled to keep up with demand, and lumber shortages cut into construction. The national supply of existing homes fell to a record low in January and stayed there in February, even as the pace of sales slowed. Inventories of US single-family homes now sit 40% lower than at the start of the pandemic, while apartment inventory is down 10%, according to UBS data.

UBS EVIDENCE LAB
Source: UBS Evidence Lab.

The supply-demand imbalance was most evident in home prices. The national median home-sale price grew at the fastest year-over-year rate on record in March, according to Redfin data published Thursday, which called it the hottest month ever in the US housing market. This extraordinary price inflation now risks making the housing market far less accessible at a time of intense economic struggle.

Potential homebuyers need not worry, Taylor Marr, lead economist at Redfin, said. After the housing’s hottest month in history, stronger homebuilding activity and attractive mortgage rates should help the market settle into a slower and more sustainable expansion, he added.

“Despite the intense competition and high prices we face, I still see more big gains to be made in home equity,” Marr said in the Thursday report. “Waiting for the market to cool could take many months, and at that point we may have missed out on the opportunity to benefit from these super-low mortgage rates and price gains in the year ahead.”

Solving the decade-old problems plaguing the housing market

One factor that should ease pressures on the market is a sharp uptick in homebuilding. Housing starts leaped nearly 20% last month to their highest level since 2006, according to Census Bureau data published Friday. Permits for building residential units also swung higher, albeit at a slower pace. The readings follow February declines linked to harsh winter storms.

Contractors are also growing increasingly confident in market conditions. The National Association of Home Builders and Wells Fargo sentiment index edged higher in an early April reading, boosted mainly by new traffic from prospective buyers.

Still, some lockdown measures are still in place, and lumber prices remain elevated.

“While states have mostly lifted restrictions, demand surges in residential construction and supply chain disruptions have made certain materials scarce, creating long lead times and cost overruns, putting additional pressure on contractors trying to service their clients, pay their employees and still have something left for themselves,” Ben Johnston, chief operating officer of lending firm Kapitus, said.

Firms also have to make up for years of slower building activity. Home construction remained relatively weak for years after the Great Recession as damage to the market left firms desperate to prop up prices.

Those efforts have since come back to haunt contractors. The housing market is about 3.8 million units short of current demand, Sam Khater, chief economist at Freddie Mac, told The Wall Street Journal. That hole would be much smaller had building kept up with demand before the pandemic struck, he said.

“This is what you get when you underbuild for 10 years,” he added.

Transitioning to a cooler, but healthier, housing market

A rebound in supply won’t reverse the market’s expansionary streak. Buying activity will remain robust as the Federal Reserve holds interest rates near zero and the economy rebounds from the coronavirus recession, Redfin’s Marr said.

“Fundamentals like low mortgage rates and high demand for housing are fueling the record-high price gains, so I don’t believe that homes are overvalued,” he said.

Price growth, however, will slow. Supply should balance out with demand in roughly six months as building picks up, Jefferies analysts led by Philip Ng said in an April 8 note.

Lumber prices should also peak over that period. The futures market currently sees the commodity plunging 26% into early 2022. That should cut down on premiums paid for new homes, according to Jefferies.

Contractors also have plenty of warning for a coming wave of fresh demand. Millennials’ homeownership rate shot higher during the pandemic, particularly among those aged 30 to 34. The population of people aged 25 to 34 is about 9% larger than that aged 35 to 44, according to Jefferies. That bigger group’s continued foray into homeownership should drive the construction of 1.7 million to 2 million new homes per year through 2024, the analysts said.

“Underbuilding has left the inventory of new and existing homes for sale at all-time lows, making the only solution to satisfy growing demand from the Millennial cohort to be new residential construction,” they added.

All signs are pointing to a surge of new building. Such a rebound is heavily reliant on lumber supply chains and, as with the broad economy, the path of the coronavirus. If growth cools as Jefferies, Redfin, and current data suggest, homeowners and prospective buyers might both come out winners.

Read the original article on Business Insider

Housing starts soar to 15-year high as builders sprint to fill market shortage

home house construction
Workers are shown building luxury single family homes in Carlsbad, California,

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

Read the original article on Business Insider

There are 40% fewer homes on the market than last year, report finds

for sale sign
  • There are 40% fewer homes on the market than last year, a report by Black Knight finds.
  • Housing prices have steadily climbed through the pandemic, and supply keeps dropping.
  • Experts worry that increased housing prices are putting homeownership out of reach for many.
  • See more stories on Insider’s business page.

Housing prices have skyrocketed during the pandemic, as it seems many people bought new homes. But something else is going on, too: not enough homes are hitting the market.

A report from real estate analytics corporation Black Knight puts into perspective just how dire the situation is: housing inventory is down by 40% compared to the same time last year, with new listing volumes down 16% year-over-year in January and 21% in February, amounting to a 125,000 deficit in inventory compared to 2020 levels.

“Any hopes of 2021 bringing an influx of homes to the market and lessening pressure on prices appear to be dashed for now,” Ben Graboske, Black Knight’s data and analytics president, told real estate news site HousingWire.

Housing affordability is at its lowest point since 2019 due to the low inventory and increased housing prices, and as Insider previously reported, the increased prices are largely thanks to the low supply of lumber and high demand for houses.

The National Association of Home Builders found that the average price of a family home has increased by $24,368 since last April, mostly because of diminishing building supplies when lumber mills shut down at the beginning of the pandemic for safety reasons. After the mills began to reopen, lumber prices spiked by 200%, and in March, housing-data platform Zonda found that at least 70% of builders were intentionally raising home prices to slow demand and give them more time to acquire materials.

Also in March, a report from real-estate brokerage Redfin found the average home sale price hit an all-time record – increasing 16% year-over-year to $331,590 – and that one in three homes had sold for more than its asking price in February.

The increase in housing prices was of concern to Redfin Chief Economist Daryl Fairweather, who said in the report that it’s putting homeownership out of reach for many Americans.

“That means a future in which most Americans will not have the opportunity to build wealth through home equity, which will worsen inequality in our society,” Fairweather said.

Insider’s Taylor Borden reported on March 23 that the number of homes for sale could run out in just two months, and experts expect inventory to remain at record lows.

Read the original article on Business Insider

The US housing-inventory crisis is starting to bite existing home sales, which fell the most since August last month

FILE PHOTO: Homes are seen for sale in the northwest area of Portland, Oregon March 20, 2014.  REUTERS/Steve Dipaola
Homes are seen for sale in the northwest area of Portland.

  • Existing home sales fell 6.6% in February to the slowest rate since August, according to NAR data.
  • Inventory held at a record-low 1.03 million, underscoring the market’s supply-demand imbalance.
  • The median selling price crept higher to $313,000 to tie the record high seen in October.
  • See more stories on Insider’s business page.

Sales of previously owned homes in the US declined more than expected in February as the housing market’s supply shortage further curbed the recent buying spree.

Existing home sales fell 6.6% last month to a seasonally adjusted annual rate of 6.22 million, according to data published by the National Association of Realtors. The reading is the first decline since November and drags the pace of sales to its lowest since August. Still, sales are up 9.1% from the year-ago level.

Economists surveyed by Bloomberg had expected a more modest drop to a 6.49 million sales rate.

The median existing-home price crept higher to $313,000, marking 108 consecutive months of year-over-year gains. The new level ties October’s record high and sits 15.8% above the year-ago level.

Home inventory remained at a record-low 1.03 million units at the end of last month. Unsold units now count for two months of sales at their current rate, up slightly from January’s 1.9 month supply.

Supply was down 29.5% year-over-year at the end of February, underscoring the shortage that’s contributed to higher prices and a now-slowing pace of sales. Home purchases first boomed at the start of the pandemic as record-low interest rates pulled borrowing costs lower. Mortgage rates set several record lows in 2020 and further boosted buying activity.

Supply strains have since lifted prices even higher, and mortgage rates are now reversing their months-long decline. Lumber shortages have also pressured costs, with the National Association of Home Builders saying last month that rising material costs are adding $24,000 to the price of new homes.

These obstacles will likely curb the market’s rally as the economy reopens, Nancy Vanden Houten, lead US economist at Oxford Economics, said.

“We look for the pace of existing-home sales to drift lower over the course of the year as headwinds from a lack of supply and eroding affordability are partially offset by the tailwinds of still-strong demand, particularly from younger households and a solid recovery,” she added.

The National Association of Realtors is more bullish toward the strained market. While affordability is weakening, strong savings and a boost from Democrats’ latest relief package should keep demand elevated through 2021, Lawrence Yun, chief economist at NAR, said.

“Various stimulus packages are expected and they will indeed help, but an increase in inventory is the best way to address surging home costs,” he added.

Contractors are struggling to rise to the occasion. Building starts for new privately owned residences fell 10.3% to a seasonally adjusted annual rate of 1.42 million in February, according to the Census Bureau. That’s the lowest level since August and marks a second straight month of decline.

Read the original article on Business Insider