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Retailers will typically offer sales around Labor Day to get stores ready for the pivotal holiday season. This year, however, there are more pre-Labor Day sales than in years past due to a problem hitting retailers across the industry: excess inventory.
"We're seeing a lot of promotion activity going into this Labor Day probably more than we have seen in years," Mark Mathews, vice president of research development and industry analysis for the National Retail Federation (NRF), told FOX Business. "It's across a full spectrum of retailers."
In 2021, retailers saw tremendous demand. Retail sales surged 14% year-over-year which is "absolutely unheard of" especially compared to pre-pandemic times when average retail sales growth was about 3.7%, according to Mathews.
Retailers were ordering a lot of goods to meet demand, however, supply chain disruptions caused significant delays for a range of products. By the time they finally hit shelves, consumer habits shifted as people traded workout attire for work attire once again, and demand waned due to a surge in inflation.
Even during pre-pandemic times it was hard to predict what consumers want, but in "post-pandemic times there is no template right now," Mathews said.
A shopper carries Macy’s branded retail bags in the Union Square parking structure in San Francisco, California, on Monday, Nov. 1, 2021. (David Paul Morris/Bloomberg via Getty Images / Getty Images)
Macy's and Nordstrom recently announced that there is a hefty amount of unsold inventory, forcing the companies to resort to deep discounts just to get rid of it.
"Promotional markdowns intensified in July as a result of the increasing price competition across the industry as all retailers work to clear out excess inventory," Macy's CEO Jeff Gennette told analysts during an earnings call earlier this month.
Macy’s has cut orders where it can to better sync with customer demand, but Gennette said inventory in some categories remains high. The company is cutting prices on seasonal goods, private label and pandemic-related merchandise like casual wear and home furnishings to clear it, he said.
Similarly, Doug McMillon, CEO of Walmart, which also owns and operates Sam's Clubs, told analysts on a recent earnings call that there was "higher-than-normal markdown activity to clear through excess inventory" during the quarter.
Kohl's CEO Michelle Gass also told analysts that the company has increased promotions and is "being aggressive on clearing excess inventory."
Mathews noted that some retailers will be more overstocked than others, which means not every store will be offering the same sales.
"There is going to be a lot of variability in terms of which retailers will have the best deals on specific products," he said.
However, it is more likely that consumers will find sales on nonessential items because they are focused on buying only necessary products to combat inflation. Consumer prices surged 8.5% in July from a year earlier.
Sale signs at a Macy’s store at the Southland Center shopping mall in Taylor, Michigan, on March 3, 2022. (Emily Elconin/Bloomberg via Getty Images / Getty Images)
Additionally, a lot of sales are also being "loaded onto" loyalty programs to benefit members, in particular, Mathews added.
Not everything that is in excess right now will be discounted, either. Some retailers are seeing this extra inventory as a positive heading into the holiday season especially since inventory levels during previous years were relatively low at that time, Mathews added.
"Some of that [excess inventory] is going to be kept and stored and, made available during the holidays," he said.
The Associated Press contributed to this report.