After many months of empty shelves and stockouts during the early stages of the pandemic, major retailers shifted their focus to restocking. Surging demand caught many companies off guard, causing them to ramp up production. Now, inventory growth has outpaced sales gains due to inflationary pressures, among other factors. Scotts Miracle-Gro Co. is just one of many companies sitting on a pile of excess inventory.
COVID-19 disrupted supply chains
COVID-19 upended the global supply chains. Stockpiling before and during lockdowns left retailers with empty shelves. Demand for some products (e.g., toilet paper and home improvement supplies) shot through the roof while demand for other products (e.g., luggage and shoes) sank.
Suppliers of in-demand products did their best to catch up, but lockdowns and social distancing guidelines and safety measures made this challenging. When the lockdowns ended, demand across many categories skyrocketed faster than expected, surprising many suppliers and retailers. The struggle then became balancing inventory to the proper level, which can be particularly challenging in uncertain economic times.
Grow, grow, grow
Scotts remained operational during the pandemic because its operations were deemed essential. Fertilizer is important to the food industry, and most of the retail stores selling Scotts products were also deemed essential.
While Scotts remained in operation, it certainly was not business as usual. The company paid its workers 50 percent more. The company switched from three 8-hour shifts to two 12-hour shifts to better utilize workers. If someone became sick, an entire shift would be sent home.
By July 2020, Scott’s consumer business sales were up more than 20 percent. This figure could have been even higher if it were not for empty shelves. The company estimates it missed out on $200 million in sales because it could not keep up its supply to meet the demand.
Meanwhile, Scotts was engaged in a multiyear production expansion project, including upgraded packaging equipment, upgraded processing equipment, and new control systems. In November 2021, the company’s executives felt Scotts’s inventory levels were in a good place. At the end of 2021, the company’s total inventory was up 55 percent compared to pre-pandemic levels.
Sales of Scotts Miracle-Gro shrink
According to Barron's, inventory growth has outpaced sales growth. In the case of Scotts Miracle-Gro, the company ramped up production in anticipation of its biggest summer ever, but the orders from retailers never came.
Scotts struggled for two years to keep lawn seed, fertilizer, and other gardening products on store shelves. While consumer spending shrank across many product categories during the pandemic, people who were forced to stay at home spent more on home improvements and repairs. Scotts fought to catch up, and though things seemed to be going well, inventory stopped moving before summer had even begun.
U.S. companies, such as Target, Walmart, and Home Depot are holding more inventory today than they were pre-pandemic. Scotts is one of many casualties of this phenomenon. These retailers have too much inventory on hand, and consumers aren’t biting. Inflation has squeezed consumers, and spending has shifted to other product categories such as travel, food, and fuel.
Scotts cut about 450 jobs (about 6 percent of its total workforce) and slowed production. The company closed some of its distribution centers and has attempted to make some of its other facilities more flexible. For example, a lighting manufacturing facility was merged into an existing plant in another state.
Luckily for Scotts, the company’s fertilizer stockpile will not go bad, so it can continue to be sold into next season. Unlike other companies, Scotts does not plan to cut its prices to move the inventory. Unfortunately, more job cuts are on the way for the fertilizer company.
In the Classroom
This article can be used to discuss supply and demand (Chapter 1: The Dynamics of Business and Economics) and supply chain management (Chapter 8: Managing Operations and Supply Chains).
How did Scotts change its operations due to the pandemic?
Why is Scotts facing a Miracle-Gro overage?
What action has Scotts taken to correct its supply chain issues?
This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.
Jacob Sonenshine, "Companies Are Finally Rebuilding Their Inventories. What That Means for Profits," Barron's, May 29, 2022, https://www.barrons.com/articles/companies-are-finally-rebuilding-their-inventories-what-that-means-for-profits-51653676673
Nathaniel Meyersohn, "Stores Have Too Much Stuff. Get Ready for Discounts," CNN, June 1, 2022, https://www.cnn.com/2022/05/27/business/stores-clothing-television-furniture-discounts/index.html
Thomas Gryta, "From Shortage to Glut: Scotts Miracle-Gro Is Buried in Fertilizer," The Wall Street Journal, September 15, 2022, https://www.wsj.com/articles/scotts-miracle-gro-shortage-glut-inventory-fertilizer-11663261193