US warehouses are absolutely inundated with merchandise, and the problem is only predicted to get worse, here's why.
Ever since shoppers started pivoting their spending away from leisure goods because of inflation’s budget-killing effects, retailers have found themselves contending with a lot of overstock. Now that excess inventory has gotten so bad that it’s beginning to cause major problems. Not only are retailers’ stock rooms filled to the brim with unsold items, but US warehouses are busting from the seams, too.
Amazon, Walmart, Best Buy, and Bath Bath & Beyond are just a handful of the retailers contending with severe overstock that has spilled over to affect their warehouse space, as well. Warehouse leasing giant Prologis, whose clients include the aforementioned retail behemoths, shed some light on the concerning situation starting to plague US warehouses. Proglogis detailed that after conducting a market analysis it believes an additional 800 million square feet of warehouse space will be needed to house all of the excess merchandise that retailers have accumulated. That 800 million is on top of the 300 million that is already leased and filled. This means that across all retailers at least 1.1 trillion square feet of warehouse space will be needed to adequately house all the extra unsold inventory. What’s more, is that mind-boggling figure only accounts for Prologis’ customers.
Furthermore, while inflation is the major catalyst driving the immense buildup of inventory, it’s not the only one. The pandemic facilitated a massive amount of supply chain disruptions. This caused many retailers to over-order to ensure they had enough inventory, should further disruptions occur. Thus, retailers were already purposely strapping themselves with extra items. Add the extra items in with the unsold items and you have a recipe for US warehouses being filled to the absolute brim.
Further complicating matters is the fact that commercial real estate space comes at a premium. And with all the retailers predicted to be left with excess merchandise, there just might not be enough additional space to go around. Construction companies are currently scrambling to keep up with the heightening demand for US warehouse space. “A record 626.6 million square feet is under construction,” according to the Wall Street Journal. Supply chain shortages leftover from the pandemic has caused warehouse construction to falter by 6.9% because the materials needed to build the spaces were unavailable or held up in clogged ports.
Whether or not enough US warehouse space will be left over to meet the needs of the retainers that need it (which seems like virtually all of them), still remains to be seen. In the meantime, companies are doing what they can to offload as much inventory as possible. Walmart is actually paying customers to keep the items they want to return, so they don’t have to put the unwanted merchandise back into their stockrooms. Many retailers are also offering attractive sales to entice folks to spend more on items that they have been avoiding because of inflation. Best Buy, for instance, has been trying to lure folks in with unbeatable deals on appliances and larger electronics like TVs. Also, many are hoping for a stellar holiday season to help clear away all the extra inventory.