The 2024 holiday shopping season has officially started with Black Friday on November 29. I want to get answers to a couple of questions:
- How much inventory did U.S. retailers carry coming into this holiday season?
- How has this inventory increased or decreased since last year?
Retailers are enjoying the benefits of robust economic growth and low unemployment. At the end of October, the unemployment rate stood at 4.1%, and inflation was 2.6%. Inflation has come down dramatically since a dramatic increase in 2021 and 2022. Since inflation affects inventory costs, the data shows a dramatic increase in inventory held on a company's balance sheet in 2020 and 2021. The initial demand shock of 2020 during March quickly turned into a supply shock as demand skyrocketed as stimulus was rolled out. The increased demand and supply chain constraints likely increased the costs of procuring inventory.
Amazon, for example, saw a steep 30% increase in inventory costs between 2020 and 2021 and another 18% increase in 2023 (Exhibit 1). In 2024, the company only showed a modest 1.9% increase in its inventory. Amazon has a massive number of third-party sellers on its marketplace, and their inventory is not included in Amazon's balance sheet.
Exhibit 1: Amazon's Inventory Costs in its Balance Sheet.
Similarly, Walmart saw a double-digit increase in its inventory costs in 2021 and 2022 but showed a 1.9% decrease in 2024 compared to 2023 (Exhibit 2). However, Walmart's data is for the fiscal period ending July 2024.
Exhibit 2: Walmart's Inventory Costs.
Among the big three retailers, Amazon, Walmart, and Costco, Costco has increased its inventory by a double-digit rate going into the 2024 holiday season (Exhibit 3). However, Costco has an excellent inventory turnover practice, so it will quickly convert its inventory into cash. Costco typically only carries 30 days of sales in inventory, the lowest among these three retailers. You can read more about Costco here.
Exhibit 3: Costco's Inventory Costs.
I looked at the inventory for a few other retail companies, including Dick's Sporting Goods, Deckers Outdoor, Home Depot, Lowe's, Burlington Stores, and Autozone (Exhibit 4). Most of these companies are coming into this holiday season with a mid-to-upper single-digit increase in inventory compared to last year. Lowe's is being cautious, with almost no change in inventory since 2023. Dick's Sporting Goods has the highest inventory cost increase of 13% over 2023.
Exhibit 4: Inventory Costs of Various Other Retailers.
Inventory costs are normalizing across the board for retailers after the tumult caused by the pandemic. Dick's Sporting Goods increase in inventory costs is a bit worrying, followed by Burlington Stores, Deckers Outdoor, and Autozone. They are hoping for a strong holiday season.
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Disclosures: I am a Sales Engineer at Snowflake. All opinions in this blog post are solely mine and do not reflect Snowflake's views. I am not a Registered Investment Advisor, and any discussion on securities or investments is not an inducement to make a particular investment.
