1. Research

5. Inventory glut

Author
Olga Cotaga
+44(20)754-15910
Deutsche Bank Research Management
Stefan Schneider

In 2022, we are going to have a lot of stuff. Everywhere. Supply chain disruptions, coupled with an imperfect market, are likely to lead retailers and manufactures to being stuck with abundant inventories.

Back to overview

In 2022, we are going to have a lot of stuff. Everywhere. Supply chain disruptions, coupled with an imperfect market, are likely to lead retailers and manufactures to being stuck with abundant inventories. A slower than expected release of pent-up demand, as well as a focus on experiences over goods, will likely exacerbate the glut. Marie Kondo would not approve.
An inventory glut will follow the fact that retailers do not want to be caught off guard with a lack of product as they have been last year and this. Although their inventories are currently low (partly due to the auto shortage), there are signs that retailers are over-ordering ahead of the busy holiday period. All the while, manufacturers are already producing and holding far more inventory than they did before covid.
This means 2022 is set for the “bullwhip” effect – where retailers and manufacturers respond to each other by under- and then over-ordering. Shortages are followed by gluts and then shortages until equilibrium is finally established.
Third-quarter earnings results showed the highest number of S&P 500 companies discussing “supply chains” in a decade.1
Exacerbating the problem are concerns that customer demand does not recover as quickly as corporates think. Our latest presentation on pent-up demand, shows that people expect their spending to rise. But each month so far, those expectations have failed to materialise. Specifically, Americans have been spending less but expect to spend more. This is why expectations of a release of pent-up demand may  not materialise. That will leave a glut of inventory either in warehouses or on the shop floor.
One important factor behind demand not materialising is people’s appetite for savings. The US still has the highest level of covid savings of large economies, at about $1.2tn, but Europeans have arguably saved more. Savings of about six per cent of 2019 GDP are slightly higher than in the US. On top of that, more Europeans think their savings will increase in the next 12 months, compared with the beginning of last year.
Equally as important for inventories is the fact that, so far, people have shown a preference for experiences over goods. Indeed, the upwards trajectory in spending since the beginning of 2021 has been the sharpest in the out-of-home entertainment, such as restaurant meals, theatre, or cinema. This has little to do with inventories.
The swings in the availability of goods will continue back and forth until an equilibrium is eventually established. In other words, the “bullwhip” effect is likely to continue to dominate the supply chains in 2022 and lead to a surplus of inventories. In that case, Marie Kondo's organisational techniques may prove useful.
  1. Factset

© Copyright 2022. Deutsche Bank AG, Deutsche Bank Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”.

The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, licensed to carry on banking business and to provide financial services under the supervision of the European Central Bank (ECB) and the German Federal Financial Supervisory Authority (BaFin). In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG, London Branch, a member of the London Stock Exchange, authorized by UK’s Prudential Regulation Authority (PRA) and subject to limited regulation by the UK’s Financial Conduct Authority (FCA) (under number 150018) and by the PRA. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Inc. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product.

29.10.0