Restocking

“Has anyone bought my scarf-dress that I dressed Georgia Fowler in when I went to the CFDA/Vogue Fashion Fund Awards?” wheezed Scott Studenberg, the creative director of lux-fashion brand Baja East to a sympathetic Vogue reporter. One assumes, given the Covid pandemic, the reporter did not need to reply. As a result of zero orders for the out-there scarf dress, Studenberg has pivoted back to tie-dyed tees and pared the number of looks it presents. Indeed. Now, Baja East is not alone. Fashion brands are not alone. Many companies big and small from across the business buffet have seen demand collapse and supply chains upended. Inventories have piled up as customers pulled orders faster than Dick Dastardly on slicks. And yet, since the April nadir, US consumers – frothed up on a range of state and federal support – have been on a binge. When talking V-shaped recoveries both retail and housing sales have smashed pre-pandemic levels by a significant margin. Supply in many cases has failed to keep up and, as a result, the inventory-to-sales ratios in both sectors are now at all-time lows. Whilst manufacturing and wholesale inventories are perhaps less extreme, they need to be watched. As retailers and homebuilders fill up their warehouses demand for manufactured goods will pick up. Indeed, as the economy continues to heal, as political uncertainty wanes and those who plan ahead eye up a recovery into a vaccined-2021, there is likely to be a change from ‘just-in-time’ inventory management, to ‘just-in-case’. With interest rates the lowest they have been in 5000 years, there is next to no incentive for holding cash, and so inventory is likely seen as a ‘may as well’ strategy; more so if the data starts to suggest a strong recovery is at hoof. Stir in concerns about further trade war supply disruptions and many businesses may well want to make sure they have what they need, before they need it. Reduce all these issues on a hot stove and you have the makings of what Jefferies Chief Economist is calling, ‘the biggest restocking cycle on record’. This will be good news for those nimble portfolios which have started to move, ahead of time.