American Eagle Outfitters is trying to clear out excess inventory. Shoppers have shifted their spending from the casual clothes and home items that had been in demand during the height of the pandemic, catching retailers off guard and leaving them with excess goods that need to be marked down. The scenario playing out at Gap, Macy's and other chains is a reversal from the past two years, when soaring consumer demand and supply-chain delays created a scarcity of goods that allowed retailers to scale back discounts. Macy's has too many casual clothes, activewear, home textiles and tableware, as shoppers are instead buying dressier clothes to wear to the office or socially. The shift was quick and dramatic. Inflation is prompting consumers to spend fewer dollars for discretionary items like apparel and home goods, just as the supply chain is loosening and merchandise is becoming more plentiful. "There was a lot of mis-forecasting in terms of how fast that shift would go back the other way," said a Citi analyst. Walmart's inventories rose 33% as it misjudged that shift. The increase also reflected the higher cost of goods due to inflation, along with a sudden improvement of moving goods through U.S. ports after the company had decided to buy products aggressively amid supply-chain snarls and out-of-stocks in past quarters. The problem is acute among apparel retailers. Gap, American Eagle, and Urban Outfitters said they were sitting on too much inventory and would have to increase discounts to clear out the excess. Gap has 34% more inventory than last year. At American Eagle, inventory jumped 46%, and at Urban Outfitters it was up 32%. Some of the bloat is due to inventory that arrived late as a result of factory closures and other supply-chain delays. Rather than try to sell through all the excess goods at lower prices right away, some retailers are packing away items for sale at a later date. The strategy had been used for years by discounters like T.J. Maxx. Now, it is going mainstream.

Classroom discussion questions:

1. What are the OM issues retailers are facing here?

2. What has caused the overstocking?