Warehouse Space Is All Of A Sudden In High Demand As A Looming "Reverse Bullwhip" Inventory Glut Looms

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by Tyler Durden
Wednesday, Aug 03, 2022 - 10:40 PM

Tell us there's an inventory glut swelling without telling us that there's an inventory glut swelling...

We have been writing over the last couple months about the coming reverse bullwhip effect - most recently noting inventory of semiconductor chips that is piling up in South Korea - and this week it is being reported that companies are seeking new warehouse space just to keep up with growth in inventories.

Retailers are "struggling to find space," the Wall Street Journal reported this week, stating that Prologis expects an additional 800 million square feet of warehouse space to be needed beyond earlier projections to handle the excess inventories". 

Chris Caton, managing director of global strategy and analytics at Prologis, told the Journal: “We have specifically heard from customers who are looking at carrying more inventories and are leasing space.”

Names like Walmart and Best Buy have reported they are dealing with inventory gluts, including in clothes, kitchen appliances and electronics. The gluts are a result of consumers spending less as inflation continues to put pressure on the middle and lower class in the country. 

Supply chain bottlenecks have also prompted retailers to make sure they have more goods on hand to prevent empty store shelves. Some retailers are bulking up orders just to be safe, and the excess inventory isn't just jamming up warehouses, it's also clogging seaports and distribution networks, the report says.

Prologis predicts that "across the company’s some 5,800 customers, the increased demand amounts to an average of about 138,000 square feet per client," WSJ wrote. 

Chris Caplice, executive director of Massachusetts Institute of Technology’s Center for Transportation and Logistics, is cautious, however. He said: “I don’t think it’s going to be like, we need to double the amount of warehouse space” and predicts that forecasts for more capacity may be overblown. 

But Karl Siebrecht, chief executive of Seattle-based Flexe Inc., which connects businesses to warehouses with shared space, confirmed the trend to the WSJ: “We do see this dynamic happening across many of our customers. When you increase inventory, you must increase the capacity of warehouses to hold that inventory.”

Recall, in the last two months we have talked about the reverse bullwhip effect many times:

In these pieces we talked about the coming "bullwhip" effect and when formerly a scarcity of inventory becomes a glut, with inventory to sales ratios exploding higher (and in some cases reaching two-decade highs)...

... assuring inventory liquidations across the retail sector, resulting in a "deflationary tsunami" and "prices falling off a cliff", forcing the Fed to eventually pivot on its hiking plans and even restart easing.