David Metzner has made a career of getting rid of stuff that customers don’t want. He’s been in the liquidation business since 1990, buying trailers full of unsold goods from importers or manufacturers and reselling them to discount retailers.
In the last three months his business, B&G Sales, has received more stuff than in any time in its history, he says, as e-commerce sellers and retailers find their warehouses overloaded with products they can’t sell, as buyer appetite has been suppressed by high prices.
Some of his most recent purchases include trailers with outdoor fountains and 14 trailers with picture frames. He also owns 11 trailers full of Afghans. “We’ve seen some of our largest deals ever—the pandemic really helped our industry,” he says.
Metzner’s windfall demonstrates a trend in the wider economy that indicates inflation may start easing soon—and not just because the Federal Reserve is raising basemark interest rates by 75 basis points. Metzner is having such a good year because of what economists call the “bullwhip effect,” which happens when an unexpected change in demand distorts the supply chain, leading to a huge excess of inventory. Retailers including Target, Walmart, and Bed, Bath, & Beyond have so much extra stuff that they’re slashing prices to entice consumers to buy it. Some stores are even considering telling customers they’ll refund them for products they bought and want to return—as long as the customer doesn’t actually return them to stores and clog up storerooms. The excess supply could cause prices to drop as a result.
“We are seeing that the supply chain is easing,” says Quincy Krosby, chief equity strategist for LPL Financial. “We’re beginning to see freight rates come down, lumber prices down, we’re seeing a wide complex of prices come down all across the board.”
Core Personal Consumption Index (which is the Fed’s inflation measure) rose 4.7% in May compared to a year earlier, according to Bureau of Economic Analysis on June 30. It represents the slowest growth rate this year. Some economists believe that inflation has peaked. The numbers showed that consumers spent less last month. However, personal savings rates are still very high and rose to 5.4% in May from 5.2%.
There are now bargains at stores all over the country that could lure consumers out of their pause in spending. There’s never been a situation before where retailers had so much excess inventory, says Zac Rogers, a professor of supply chain management at Colorado State University.
That’s because there’s never been a bust-boom-bust cycle quite like the last two years. Manufacturers and retailers cancelled orders when the pandemic hit. They didn’t know what was going to happen. With stimulus money in their hands, the consumers began spending on goods. As retailers worried they wouldn’t be able to get enough goods for the holiday season because of supply chain issues, they placed a huge amount of orders, sometimes paying extra to get goods to stores on time. Consumers were beginning to alter their spending habits. Consumers began to cut back on purchases of discretionary goods as gas prices and energy prices rose. After four months of steady growth, retail sales fell in December 2021. This is an unexpected slowdown for holiday season.
Consumers stopped spending on entertainment and clothes after the Ukraine invasion and subsequent sanctions caused energy shortages. As retailers received orders delayed or stuck at ports, they stopped buying.
Continue reading: The Long-Term Effect of Gas Prices Upon Falling
“It’s just this perfect storm of we ramped up inventory and suddenly no one wants to buy it,” Rogers says.
This week Michael J. Burry (the hedge fund manager that predicted the subprime mortgage crises) tweeted his prediction on Twitter: The bullwhip effect will lead to disinflation in the second half of this year. This could prompt the Federal Reserve’s to reverse or pause previous rate increases. The central bank will likely raise rates in July, as is the expectation.
Learn more about the Bullwhip Effect. Diverse verticals in the economy are at different times. Fundamental equity investors rarely look at multiple verticals at once. https://t.co/DZLgje0Pmz
It’s the math. https://t.co/eMF39ah9gS— Cassandra B.C. (@michaeljburry) June 28, 2022
The government tracks inflation using a limited number of items, including household furniture, clothing, and apparel sold at Walmart and Target. However, there is evidence that larger, more expensive expenses may become less costly. The amount of homes for sale is trending upwards—the number of properties available grew at its fastest pace of all time in June—18.7%—according to Realtor.com.
The global supply chain has seen some of its blocks disappear. It is easier for retailers and manufacturers to ship goods from Asia via ocean freight, as these rates are decreasing. Prices of agricultural commodities and metals are decreasing. Prices for used cars, which began to rise a few years ago and signaled the onset of runaway inflation are now falling.
Continue reading: Why a Recession Isn’t Inevitable
David Rosenberg owns nine New England-based car dealerships. According to him, the prices for used cars starting to drop at auctions and that buyers starting to bargain on prices. “We’re seeing prices start to drop, and we’re also seeing a little bit of slowdown in used car demand,” he says. He says that although new car prices remain stubbornly high but certain brands like Volkswagen and Toyota are beginning to be able supply more inventory. Accessibility of key parts is being improved by the fact that China has emerged from its lockdown.
In some sectors, like housing, the Fed’s decision to raise interest rates has contributed to increased inventory. Since January 1, mortgage rates nearly doubled. This means that the average monthly payment to buy a home of median price has increased by $500. That’s prompting some would-be buyers to bow out of the market, increasing the supply of homes available.
“People can’t qualify for the house they would have qualified for four or five months ago,” says Bill Adams, president of Adams Realtors in Atlanta. He explained that instead of 10 people competing to buy a home and over-paying the listing price, only a handful are bidding. Adams states that fewer homes are being put on the market. In Austin, one of the country’s hottest housing markets, homes will only have multiple offers if they are priced right and if there aren’t any “red flags,” says Brad Pauly, a real estate agent with Pauly Presley.
Continue reading: Signs Are Pointing to a Slowdown in the Housing Market—At Last
As prices come down, the economy could receive a boost from states like California, where the state is sending out “inflation relief” checks to help lower and middle-income residents. Research has shown that low-income people tend to spend the stimulus money on items they use, rather than wealthy individuals who can save it.
It’s going to take a lot of spending to plow through all of the excess inventory retailers are holding right now, but that means prices should stay low. There’s so much extra stuff that retailers are trying to get rid of that even David Metzner, the liquidator, is increasingly having to decline offers. He’s receiving more offers from sellers trying to offload products they ordered to sell on sites like Amazon, and then couldn’t get rid of. Since fashion is constantly changing, he avoids the subject of fashion as it can be difficult to keep up with what customers want. And then there are all the items that retailers panic-ordered during the pandemic, that consumers don’t need anymore. B&G Sales bought hand sanitizer and wipes when companies were trying to get rid of them last year, but even it stopped buying those supplies eventually. It didn’t bite when Dial Soap was trying to get rid of 400 trailers of hand soap it had produced for the pandemic.
If not even a liquidator will buy your product, you’ve probably got some more big bills coming to get rid of your stuff, or store it til next year. Metzner says his company was offered $13 million worth of hand sanitizer, but didn’t buy it because it was approaching its expiration date. According to Metzner, the company who tried to sell it spent $750,000 in order to remove it from various cities dumps.
“I don’t understand where all of this [stuff] is ultimately going,” he says. “I guess there’s a reason you can see the New York City dump from space.”
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