Click here: The Weekly Beacon – December 2 2022
We will be giving some macro economic market updates on a weekly basis. No equity recommendations will be given in this commentary, and we encourage you to contact us if you have questions regarding any observations.
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This weeks issue: Inventory, Retail Sales, Walmart, Consumer Goods, Target, Canadian Stale Inventory, U.S. Retail Habits, Black Friday Sales, Amazon, Recession, Famine, Netherlands, Dutch Farmers, Emission Reduction, European Union, Beyond Meat Stock, Alternative Meat Options, Santa Rally, U.S. Indices, RBC buys HSBC Canada, Bank M&A, Renting or Owning, Should I Rent or Buy My House?, Nuclear Energy, Wind Energy, Fossil Fuels, Twitter, Elon Musk, FTX, SBF, Fraud, New York Times.
Growing Inventories; Continuing to be a Problem
CEOs are being put to the test in the current portion of the business cycle. Numerous companies are underperforming due to stale inventory. Companies are sitting on their largest stockpiles of inventories in years. Many companies increased inventory at their fastest rate ever (YoY) in response to an increase in demand for consumer goods during Covid-19. People could not participate in any service activities, so they purchased goods to fill their needs. Consumers helped Amazon, Target, Walmart, and many other retailers set profit and sales records during Covid-19. The closures were good for retailers as people could not do anything except entertain themselves with products (services were for the most part unavailable at this time). Fast forward to now and certain companies have been sitting on stale inventory for months. Consumers have pulled back on spending due to inflation, recession fears, and a preference change. For 18 months, consumers were limited to what they could do, now that lockdowns are for the most part over, our economy has shifted from goods focused to services focused. We forecasted this months ago and is a reason that we said Amazon and other retailers could take a hit on their income statements. The Covid-19 economic cycle was temporary, but it seems certain CEOs thought that it was permanent when you look at their order book. The last year has shown investors that strong leadership matters when investing in a company.
The issue looks much worse up north than in the U.S.
Inventories in Canada have grown at a record rate while sales have slumped over the last year. Expect certain Canadian retailers to struggle out of the gates in 2023 and expect some non-traditional blowout sales as a response to stale inventory for select Canadian retailers.