Retail finance chiefs are entering the busiest shopping season of the year with declining profit margins as their companies offer more discounts to compete for sales and clear out excess stock.
Profit margins in the sector have shrunk in recent months due to a mix of high inflation, excess inventory and growing expectations from consumers for price reductions. Among retailers in the S&P 500 that reported financial results through Nov. 22, the average margin on earnings before interest and taxes declined to 10.7% in the third quarter from 13.2% in the year-earlier period, according to S&P Global Market Intelligence.
Some chief financial officers in the retail sector say markdowns are necessary to start the new year without the drag of excess stock on their shelves. Companies were caught off guard earlier this year by rapid changes in consumers’ buying habits, leaving them with a glut of early-pandemic favorites such as athletic wear and home goods….