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The Sam M. Walton College of Business

High Inventory Levels and Declining Sales Could Spell Bad News for Retailers

A man stands in front of tall racks of boxes of inventory in a warehouse.
April 07, 2022  |  By Jason Miller, Ron Gordon

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Retailers spent most of the previous 25 months struggling to keep pace with historic consumer demand. Meeting that demand would have been challenging in the best of times, but the pandemic’s impact on global supply chains and retail inventories made the task downright Herculean. 

Unfortunately, just as COVID-19 case numbers have fallen and supply chains have recovered enough for firms to replenish their inventories, it seems retailers may be headed out of the frying pan into the fire. 


Recent federal economic data suggests that inflation and the resurgence of travel and restaurant dining may be cooling retail demand. Census Bureau data shows that seasonally adjusted retail trade sales excluding motor vehicle & parts dealers dipped slightly in February, though they remained well above the pre-COVID trendline. 

Chart showing retail sales excluding motor vehicle and parts dealers from January 2017 to February 2022

However, the Federal Reserve Bank of Chicago’s forecast for this sector of retail (combined with food services) expects an even sharper drop for March, suggesting that February’s disappointing sales may not have been a blip on the radar, but the start of a downward trend. 

Chart showing retail and food service sales excluding motor vehicle and parts dealers from January 2019 to March 2022

Inventory Levels

Declining sales are never good news, but they are particularly undesireable when inventory levels are simultaneously increasing. Census Bureau data shows that inventory levels have stayed well below 2019 levels through most of the pandemic and did not recover until very recently. If sales continue falling, then retailers’ newly replenished inventories — which would have been an asset had sales remained at 2021 levels — could prove to be a burden that ties up working capital and erodes profitability. 

Chart showing seasonally adjusted real inventories to real sales for retail trade excluding motor vehicles and parts dealers from January 2017 to February 2022

Chart showing real inventories for retail trade excluding motor vehicle and parts dealers from January 2017 to February 2022

Jason MillerJason Miller is an associate professor of supply chain management at Michigan State University's Eli Broad College of Business. He utilizes economic data from various government sources to develop insights for supply chain management practitioners.


Matt WallerRon Gordon is the Supply Chain Management Research Center's communications specialist. He has a U.S. History from the University of Arkansas.

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