David Metzner has made a career of getting rid of stuff that customers don’t want. He’s been in the liquidation business since 1990, buying trailers full of unsold goods from importers or manufacturers and reselling them to discount retailers.
In the last three months his business, B&G Sales, has received more stuff than in any time in its history, he says, as e-commerce sellers and retailers find their warehouses overloaded with products they can’t sell, as buyer appetite has been suppressed by high prices.
A few of his recent acquisitions include 13 trailers of outdoor garden fountains, 14 trailers of picture frames, and 11 trailers of afghans. “We’ve seen some of our largest deals ever—the pandemic really helped our industry,” he says.
Metzner’s windfall demonstrates a trend in the wider economy that indicates inflation may start easing soon—and not just because the Federal Reserve is raising basemark interest rates by 75 basis points. Metzner is having such a good year because of what economists call the “bullwhip effect,” which happens when an unexpected change in demand distorts the supply chain, leading to a huge excess of inventory. Retailers including Target, Walmart, and Bed, Bath, & Beyond have so much extra stuff that they’re slashing prices to entice consumers to buy it. Some stores are even considering telling customers they’ll refund them for products they bought and want to return—as long as the customer doesn’t actually return them to stores and clog up storerooms. As this excess supply ripples across retail, housing, and even the auto market, prices could start to level off.
“We are seeing that the supply chain is easing,” says Quincy Krosby, chief equity strategist for LPL Financial. “We’re beginning to see freight rates come down, lumber prices down, we’re seeing a wide complex of prices come down all across the board.”
The core Personal Consumption Index, which is the inflation measure closely tracked by the Fed, rose 4.7% in May from a year ago, the Bureau of Economic Analysis said on June 30, which represents the slowest rate of growth this year. The data suggests to some economists that inflation may have peaked. While the numbers also showed that consumer spending slowed last month, the personal saving rate is still high, and increased in May to 5.4%, from 5.2%.
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Consumers may now be lured out of a pause in spending by bargains in stores across the country. There’s never been a situation before where retailers had so much excess inventory, says Zac Rogers, a professor of supply chain management at Colorado State University.
That’s because there’s never been a bust-boom-bust cycle quite like the last two years. The onset of the pandemic caused a sharp drop in demand, and manufacturers and retailers canceled orders, not knowing what would happen next. Then, with stimulus checks in their pockets, consumers started spending on goods. As retailers worried they wouldn’t be able to get enough goods for the holiday season because of supply chain issues, they placed a huge amount of orders, sometimes paying extra to get goods to stores on time. But by then, consumers were starting to shift their spending habits. Gas prices were rising, as were energy prices, and this inflation led consumers to pull back on shopping for discretionary items. Retail sales actually declined in December of 2021 after four straight months of growth, an unusual slowdown for the holiday season.
By the time the invasion of Ukraine and resulting sanctions triggered energy shortages and the resulting inflation, consumers were no longer in the mood to spend on discretionary items like clothes or entertainment. They stopped spending as retailers got in orders that had been stuck in ports or otherwise delayed because of supply chain issues.
“It’s just this perfect storm of we ramped up inventory and suddenly no one wants to buy it,” Rogers says.
On Twitter this week, Michael J. Burry, the hedge fund manager who predicted the subprime mortgage crisis, predicted that the bullwhip effect would lead to disinflation later this year. He suggested that this could motivate the Federal Reserve to pause or reverse previous interest rate hikes. (The central bank is widely expected to raise rates again in July.)
Of course, goods like household furnishings, apparel, and other items sold at stores like Target and Walmart make up a small share of the basket of goods the government uses to track inflation. But there are signs that other, weightier expenses will become more affordable, too. The amount of homes for sale is trending upwards—the number of properties available grew at its fastest pace of all time in June—18.7%—according to Realtor.com.
Some of the blocks in the global supply chain have also eased. Ocean freight rates are falling, which makes it much easier for retailers to get goods from Asia, and reduces their costs. The prices of metals and agricultural commodities are falling. Used car prices, which started climbing a year ago, signaling the start of runaway inflation, are softening too.
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David Rosenberg, who owns nine car dealerships across New England, says that prices of used cars at auction are starting to fall, and that buyers are starting to try and negotiate on used car prices again. “We’re seeing prices start to drop, and we’re also seeing a little bit of slowdown in used car demand,” he says. New car prices are still stubbornly high, but some brands, including Volkswagen and Toyota, are starting to be able to supply more inventory, he says. The fact that China is emerging from lockdown is also helping availability of core parts.
In some sectors, like housing, the Fed’s decision to raise interest rates has contributed to increased inventory. Mortgage rates have nearly doubled since the beginning of the year, meaning that the monthly payment for a median-priced home has increased by about $500 since January. That’s prompting some would-be buyers to bow out of the market, increasing the supply of homes available.
“People can’t qualify for the house they would have qualified for four or five months ago,” says Bill Adams, president of Adams Realtors in Atlanta. What that means, he says, is instead of having 10 people competing for a house and paying over listing price, there are now just a few people bidding on a house. As a result, fewer properties are going into contract, Adams says. In Austin, one of the country’s hottest housing markets, homes will only have multiple offers if they are priced right and if there aren’t any “red flags,” says Brad Pauly, a real estate agent with Pauly Presley.
As prices come down, the economy could receive a boost from states like California, where the state is sending out “inflation relief” checks to help lower and middle-income residents. Research shows that lower-income residents tend to spend stimulus money on things they need, as opposed to wealthier people, who save it.
It’s going to take a lot of spending to plow through all of the excess inventory retailers are holding right now, but that means prices should stay low. There’s so much extra stuff that retailers are trying to get rid of that even David Metzner, the liquidator, is increasingly having to decline offers. He’s receiving more offers from sellers trying to offload products they ordered to sell on sites like Amazon, and then couldn’t get rid of. He tries to stay away from fashion because trends change so quickly that containers of clothes that retailers ordered last year may no longer be what consumers want. And then there are all the items that retailers panic-ordered during the pandemic, that consumers don’t need anymore. B&G Sales bought hand sanitizer and wipes when companies were trying to get rid of them last year, but even it stopped buying those supplies eventually. It didn’t bite when Dial Soap was trying to get rid of 400 trailers of hand soap it had produced for the pandemic.
If not even a liquidator will buy your product, you’ve probably got some more big bills coming to get rid of your stuff, or store it til next year. Metzner says his company was offered $13 million worth of hand sanitizer, but didn’t buy it because it was approaching its expiration date. The company that was trying to sell it, he says, ended up spending $750,000 to get rid of it at various city dumps.
“I don’t understand where all of this [stuff] is ultimately going,” he says. “I guess there’s a reason you can see the New York City dump from space.”
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