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Consumer goods firms’ inventories slumps as businesses gradually manage stocks amid slowing demand in the face of a difficult business environment, with the stock-turnover-ratio hitting a three-year low.
According to data gathered by MoneyCentral, consumer goods firms’ Inventory of unsold goods jumped 12.64 percent to N750.64 billion in the first quarter of 2023, from N666.64 billion as at March 2022.
A trend analysis shows combined inventories have been growing at a fast pace as the figure stood at N269.48 billion in 2018, N291.53 billion in 2019, N363.35 billion in 2020, and N350.53 billion in 2021.
Of course, stakeholders have bemoaned the record number of inventory sitting on other shelves that they complain that the disposable income of the consumers has been grossly eroded.
Inventory pileup undermines the bottom-line as it squeezes profit margins and it ties up capital that could have been used for something else.
In the last ten years, inflation has been stealing workers’ wages and impoverishing Nigerians as the country has passed through two recession in 2016 and 2020.
Nigeria’s inflation rate rose to 22.41 percent in May 2023, marking the fifth consecutive increase. Despite monetary policies to control inflation, it remains at an over 17-year high.
And things could get worse as the inflation is expected to spike further on the back of the removal of subsidy and the unification of the exchange rate which has sent prices higher.
The Bank of America (BOA) has said that at the current trend, inflation may quicken to 30 per cent by the end of the year.
Nigeria’s Gross Domestic Product (GDP) growth slowed to 2.31 per cent in the first quarter (Q1) of 2023 from 3.52 per cent in the fourth quarter of 2022.
The headline PMI remained above the 50.0 no-change mark in June. Although dipping slightly to 53.2 from 54.0 in May, according to Stanbic IBTC’s Purchasing Managers Index report.
The report, which measures the pulse of private sector activity on a monthly basis said that business confidence dipped to a near-record low as intensifying inflationary pressures encouraged companies to expand inventories to try and get ahead of further price increases.
“Input prices increased at the fastest pace since Aug 22, while the rate of selling price inflation accelerated sharply as firms passed higher costs on to their customers,” said Muyiwa Oni, Head of Equity Research West Africa at Stanbic IBTC Bank.
“Consequently, rates of expansion in output and new orders softened during the month. Notably, business confidence dipped to a near-record low while companies expand inventories to try and get ahead of further price increases.”
Consumer goods firms are not turning over inventory to sales at a faster pace as stock turnover ratio has fallen.
The average inventory turnover ratio reduced to 1.13 or 323 days in March 2023 from 1.87 or 195.19 days the previous year, according to MoneyCentral calculations.
Simply put, it means companies turned over their inventories every 323 days on average during the year.