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"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?" *
That’s the question posed by Alex Vuocolo in the May 21, 2025 Retail Brew.
That vexing issue of “how much inventory is too much?” is not new to retailers, of course. But the volatility of the tariffs being imposed by the current administration are a significant complication.
So are retailers responding by “squirreling away a little extra if higher costs are on the horizon?” Recent earnings reports by publicy-traded retailers and logistics companies "show that some are choosing to stock up just to be safe," Vuocolo reports.
Macro-level data paints a similar picture. The U.S. trade deficit increased 14% in March, and imports of consumer goods increased ten-fold to $22.5 billion, up from just a $2.4 billion increase in February. Somebody is squirreling inventory away!
Reading the tea leaves of macro-economics can be useful, but when faced with "How much inventory is too much or too little?", independent retailers are better served by focusing on two things: their customers' and their cash flow.
Retailers are keenly aware of how shoppers already have been dealing with inflation and increased costs. A research report from the Bank of America Institute shows retailers are remaining cautious, keeping inventory levels relatively lean.
According to David Tinsley, senior economist at Bank of America Institute, "When economic uncertainty increases, sometimes doing nothing is the best option. You might see firms being a bit hesitant to invest or hire, and I think probably the same is true on inventories as well."
After all, it’s what we call The Goldilocks Question about inventory: Too much? Too little? Or just right? Good luck!!
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*"How much inventory is too much to prepare for tariffs?" Alex Vuocolo, Retail Brew, May 21, 2025.
Undoubtedly you'll agree with this. We read and hear a lot in the business press, but we treat 100% of it rather skeptically. And so it is with articles and commentary about this coming Holiday Season, specifically about retailers' inventory and margins. Nevertheless, there is considerable good news being trumpeted. Most recently, this feature article in the Wall Street Journal: "Retailers Hone Inventory for Holidays" *
It’s very common for retailers to have their fiscal year end be January 31. It’s after the Holiday season, and inventories are generally low.
Likewise, it’s also very common that retailers are taking (or having a service take) physical inventory this weekend or soon thereafter.
As we all know, counting inventory by hand is tedious, boring, expensive and, frankly, no fun at all. However, whether by hand, by barcode, by any method of technology, the inventory count matters, and it matters a lot!
Let’s review the Big Picture for this business doing $700,000 in revenue, with $290,000 in total operating expenses.
This is the time of year when most retailers are scheduled to take their annual physical inventory count. Along with that comes the interruption of daily lives, very serious attitudes of bookkeepers and accountants, and, of course, extra expenses. Oh yes, those! Typically, preparing for and taking the item-by-item count involves a lot of emphasis on "Make sure to count everything. We don't want to miss anything!" This often-loud focus is true whether the counting is done manually, by scanning, or any other means. "We must count it all!" Okay, but why? Why is it so darn important to count every last fish hook or candy bar or tube of lipstick?!
It helps to know why.
Being the owner of a business always has pluses and minuses. Usually the pluses outnumber the minuses. But maybe not so much right now. If you feel that way, you've got a lot of company. Ugh! But hang on; maybe we have a perspective that you'll find useful and timely. It's called "Misery loves company!" First, consider where we are. Early July, just past a nice Fourth of July Holiday weekend. The summer and early fall look promising, both for getting "back to normal" and for some leisure hours in the hammock. Nice, eh? But there are those dark clouds out there.
There is much enthusiasm coming out of the buying trade shows, and why not? Attendance levels have been near to or better than 2019. Energy levels are high, and very contagious. A sense of urgency persists, due to past supply chain issues, emboldening the pressures from the vendors to "Buy now!" Especially in today's environment, FOMO - the Fear Of Missing Out – can be a compelling sales pitch. How to deal with this pressure, especially given all the headlines about a coming recession, or drops in consumer spending, or cautions about the need to control expenses, improve profits, maintain cash? Here are two tactics to help you manage this. One helps monitor and control "How much to buy?" The other helps decide "What to buy?"
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