Business owners are warily stocking their inventories
In March, wholesalers’ inventories fell from the month before, down 0.4%, according to the Commerce Department. And in April, a separate survey of business owners — the Logistics Managers’ Index — found that inventories barely ticked up. Business owners’ decisions to either stock up on inventory or keep their shelves lean can say a lot about how they’re thinking about the economy.
Earlier in the year, Pat Whelan decided to bring in a lot of inventory for his grocery store and wholesaling business in Brooklyn, Sahadi Fine Foods. He imports a lot of products from parts of the Middle East that are unstable right now.
“The political climate there meant I had to bulk up inventory, put a buffer here, add another couple months to the inventory cycle,” Whelan said.
But he said bulking up on inventory is a whole different challenge, because it requires borrowed money. And with interest rates as high as they are, he said, “the cost of your inventory is two to three times what it was a few years ago.”
As a result, Whelan said he’s trying to be a little smarter about his inventory levels.
“We’re still going to continue to replenish, but we need to take that buffer down a little bit,” he said.
A lot of other businesses had been loading up on inventory this year because they thought if the Federal Reserve cut interest rates soon, “consumers would be ready to spend more,” said Dale Rogers, a professor at Arizona State University who helps put together the Logistics Managers’ Index.
He said businesses have realized that it’s not clear whether the Fed will cut rates at all this year. As a result, “they’re making decisions, in some cases, to postpone purchases until they absolutely need it,” Rogers said.
That kind of just-in-time inventory management has a lot of advantages.
Cathrine Reynolds handles imports at Palmetto Tile Distributors in South Carolina. She’s also ordering less inventory right now and said that lets her stay nimble.
“If I do see something that’s not selling, then I can easily sell off the last part of it and not have to worry, not be stuck with inventory that’s kind of gone stale, so to speak,” said Reynolds.
Reynolds said keeping inventories low also lets her experiment a little more. For instance, she can bring in a small amount of new, bolder tiles when it’s no big deal if they don’t sell. But if they do, then that’s great.
“We work with a lot of architects and designers, and it’s always good to pique their interest and have the latest, greatest things to offer them,” she said.
Reynolds said that can help her boost sales, even when the economy’s uncertain.