First there was not enough. Now, for some, there’s too much.

That’s the word from certain promotional products suppliers when it comes to inventory levels.

During the bounce back in promo business that occurred in 2021 and 2022 following a pandemic-caused sales depression, a plethora of supply chain challenges prevented suppliers from stocking to desired levels.

That led to holes in inventory that made sourcing more difficult for distributors, sometimes resulting in lost orders or, more often, having to provide end-clients with items that were not their first choice.  

To prevent a dearth of inventory from causing problems again, many suppliers got proactive and restocked to levels beyond what they may have carried prior to the COVID-19 pandemic through the latter half of 2022 and into 2023. Some, however, now say they overdid it – and are dealing with repercussions as a result.

A number told ASI Media that overstock has been and continues to be an issue this year, but were loath to talk on the record about it. Not so Jeremy Lott. The CEO of Top 40 firm SanMar (asi/84863), promo’s largest supplier, admits that the Issaquah, WA-headquartered company overbuilt inventories at the outset of 2023.

As a result, SanMar has had to add almost 2 million square feet of distribution-center space in 2023 – much of it to house the stock build.

“More inventory has meant more space and associated cost,” says Lott, who ranks third on Counselor’s Power 50 list of promo’s most influential people. “This has weighed heavily on the business, meaning more borrowing in a high interest rate environment and lower margin, as we have been more aggressive with our pricing structure.”

The longer the lead time on a product or product line, the more likely it is to be over-inventoried, Lott shares. “Many of our retail brands have over 12-month lead times,” he notes.

“Heading in the Right Direction”

Top 40 supplier Ariel Premium Supply (asi/36730) also experienced some inflated stock levels this year on certain products, including former hot sellers in the drinkware category.

Even so, the excess stock didn’t have a major impact on Ariel’s business, and the firm has been able to get levels in line for the most part, says Ariel Co-Owner Yuhling Lu. “We always have a percentage of products that move slowly, but overall I feel our position is good and we are not experiencing overstock issues in general,” Lu shares. 

Frank Carpenito details a similar situation at Top 40 supplier Gemline (asi/56070).

$901.8 Billion
Total inventories of merchant wholesalers in the U.S. at the end of September, a 1.2% decrease from September 2022.

(U.S. Census Bureau)

The president/CEO of the Massachusetts-based supplier says it ramped up inventory to record tallies in August of 2022. By the end of last year, stock was registering at what Carpenito describes as a “slightly inflated” number. Still, over the first eight months of 2023, Gemline carefully brought inventory levels down to its target.

“We’re holding up nicely,” says Carpenito. “Our current inventory level is right in line with what we budgeted and reflects a rightsizing of stock.”

Things are looking up at SanMar, too.

“Today,” says Lott, “our inventories are getting much more in line, and we expect to have desired amounts by the middle of 2024, assuming sales trends continue. We’re happy to be heading in the right direction.”

Factors Fueling Promo Overstock

One key factor that’s contributed to promotional products overstock is that suppliers – and other importers – have gone through such a topsy-turvy, anomalous stretch due to the pandemic and subsequent recovery.

Product preferences and availability were in flux, and demand boomeranged from bust to boom so rapidly, it was difficult to forecast what would be appropriate stock levels of which type of products, executives say. Relatedly, suppliers didn’t want to be short again as they were at times during the recovery, so the tendency for some was to err on the side of abundance rather than going lean.

“Coming out of a time of being under-inventoried and projecting what sales would have been had we had stock, then projecting growth off of that, was challenging,” Lott shares. 

“We expect to have desired amounts of stock by the middle of 2024. We’re happy to be heading in the right direction.”Jeremy Lott, SanMar (asi/84863)

Meanwhile, Power 50 member Chris Anderson, CEO of Top 40 supplier HPG (asi/61966), says the firm’s inventory is at healthy levels. Still, he believes the vicissitudes of a dynamic marketplace have led to inventory rising above desired heights for some suppliers.

“Average order values have dropped and there’s been an overall reduction in demand, which can send inventory climbing,” Anderson says.

He and other executives also point to what they characterize as a possible shift in preference among some end-buyers from more higher-priced items – which were popular during the pandemic recovery period – to more mid-priced or low-cost products in today’s largely “normalized” post-COVID market.

“In speaking with lots of distributors, it appears that sales of the higher-priced merchandise have slowed,” says Jeffrey Nanus, CEO of Norwood, NJ-based eco-friendly hard goods supplier AAA Innovations (asi/30023).

As a result, executives say, some suppliers could be sitting with inflated stock on higher-end items.

Discounts & Pricing Outlook

As overstock continues to exist at some supplier firms, distributors may be able to find bargains. Even suppliers who say inventory is in a good place are planning discounts to help move stock.

“Where we do have some slight stock excess, we are selectively offering discounts on targeted SKUs, which is an ongoing practice for us,” notes Gemline’s Carpenito, a member of the Counselor Power 50.

Lu says Ariel Premium Supply is planning end-of-year discounts to help move items that have idled too long, including certain drinkware products. “We’ll have sales on these and others, including wireless earbuds and Bluetooth speakers,” she reports.

Distributors should also be able to find steals as certain suppliers, regardless of overstock or not, offer closeout pricing on some SKUs at year’s end. “We may discount as we discontinue to make way for new product,” says Power 50 member Trevor Gnesin, CEO of Top 40 supplier Logomark (asi/67866), which reports a healthy inventory balance.

“I do not expect to see line-wide price reductions in our industry, as wage, rent and insurance costs all continue to escalate. I think you will see some suppliers reduce pricing on select ranges/product types.”Chris Anderson, HPG (asi/61966)

Looking out further on the horizon regarding pricing: Do suppliers think there will be widespread decreases on the prices they charge distributors in 2024?

It’s a reasonable question to ask, given overstock and other variables in play, including decreasing inflation rates, the precipitous decline in freight/importing costs from pandemic-era highs, and relief on select commodity costs – all things that impact a promo product’s price. 

Preliminary word from suppliers is that sweeping, across-the-board price drops on products in the industry are probably not likely.

“One reason for that is even though freight container prices are holding at this time, many companies have to adjust their blend of pricing from previous high container pricing and lower container pricing to average their cost,” says Gnesin. “Also, I believe prices may go up another 2% to 5% on average due to having to be competitive in the labor market. Labor costs are rising, and to find workers we need to adjust to be competitive with other industries.”

Nonetheless, pricing could decelerate on select items, executives say.

“I do not expect to see line-wide price reductions in our industry, as wage, rent and insurance costs all continue to escalate,” says Anderson. “However, I think you will see some suppliers reduce pricing on select ranges/product types. For instance, at HPG, we are just rolling out a considerable (on average, 20%) price reduction on several of our technology and lifestyle products from our Origaudio and HandStands brands.”

The Surplus-Stock Battle in Retail

It’s not just promo suppliers that have contended with overstock.

Retailers were saddled with surplus inventories during the COVID-era economic recovery and into the post-pandemic period. To wit, total retailer inventories reportedly rose by $78 billion to around $740 billion over the course of 2022 — an increase of about 12%.

Worried about shortages, retailers bought big to beef up stock in certain categories that were much sought-after in the pandemic (hello, sweatpants), but whose popularity waned amid factors like shifting consumer spending habits as society normalized and inflation soared. Target, Walmart, Gap and Abercrombie & Fitch were just a few of the retailers affected.

To correct things, retailers undertook destocking efforts that included steep discounting. Broadly speaking, analysts say that inventories at retail – especially among the biggest players –are nowadays more in line with historical norms, something attested by macrodata assessments like the latest Institute for Supply Management’s Customers’ Inventories Index and the most recent U.S. Census Bureau business inventories/sales ratio.

Even so, some retailers are still chipping away at piles of stock. “The largest retailers are past working through their excess inventories” but some small- to medium-size retailers are still destocking, Noah Hoffman, vice president for North American Surface Transportation at logistics provider C.H. Robinson, told the CNBC Supply Chain Survey this November.

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