Scarcity has been the story of the past year — and much of the past two. First, there was no toilet paper. Then there were Dr. Pepper shortages. When the vaccines showed up, eager arms would stalk the aisles of the supermarket near closing time, hoping to snag the elusive leftover dose of Moderna.
In 2021, it became impossible to buy a car. In 2022, if you wanted to buy (or even rent) a home, you had to make an offer while standing in the foyer.
Scarcity (supply falling far short of demand) was not normal for people before COVID-19. We were always able to find more than we needed for everything we wanted.
So how the heck did Target and Walmart end up sitting on too much stuff?
“Target Corp. warned its profit would drop,” the Wall Street Journal reported in early June “because it needs to cancel orders with vendors and offer discounts to clear out unwanted goods, the latest sign of the sudden mismatch between supply and demand inside America’s stores.”
Target’s stock dropped 9% in a day, triggering another stock market selloff. Stock market selloffs are typical these days, but excess inventory is, to put it mildly, not typical these days. Walmart ended up in the same position. Both megaretailers reported in late May that they had stocked up more than they could sell.
The explanation looks to be pretty straightforward: After months of being unable to meet customers’ demand for stuff to make their homes better, Target and Walmart went whole-hog in their orders from manufacturers and wholesalers. And they overshot.
Demand for patio furniture and nonstick pans slowed down as people generally started going out more — or burning more of their paycheck on gasoline. More broadly, a store needs to predict demand ahead of time, and ever since March 2020, it has become impossible to predict the future based on the recent past.
For shoppers, this means a rare source of discounts and surpluses: a pleasant relief from our very un-American spell of scarcity. For shareholders, it means some pain. For analysts, hopefully, this whole episode means some humility.
