Final answer:
Retailers carry excess inventory to manage short-term spikes in demand and fluctuations in the market, to meet long-term trends, and to compete effectively by fulfilling consumer needs immediately, thus preventing loss of sales and market opportunity.
Step-by-step explanation:
It costs money to carry inventory, and while this is an expense, retailers must have an amount of inventory that exceeds planned sales for various reasons. One main reason is that due to the complexities of the law of supply and demand, short-term fluctuations in the market can cause sudden increases in consumer demand. If a retailer has insufficient stock, they may miss out on potential sales and profits, especially when consumer demand exceeds supply, leading to higher prices.
Moreover, retailers also need to consider long-term market trends, where quantities often fluctuate more than prices. Maintaining a healthy inventory helps stabilize the supply to meet the demand over longer periods. Additionally, competition in the market drives the necessity for retailers to carry adequate inventory; it ensures they can meet the immediate needs of consumers and prevent them from turning to competitors. Thusly, keeping additional inventory can be seen as a crucial strategy in meeting and securing market opportunities, both in the short-run and long run.