As consumer spending has fallen amid the economic downturn, U.S. retail chains have cut back savagely on inventory to save cash. An understandable reaction, but one that could spell trouble for suppliers and retailers alike in the run-up to the holiday season, reports Richard Woodard.
The grim specter of last year's Christmas holiday shopping season is still casting its gloomy shadow over the U.S. retail sector as the year's most crucial trading period beckons once more.
Retailers have spent much of the past 12 months cutting staff, shuttering stores and renegotiating credit lines in a bid to stay profitable -- or just to stay alive.
And one thing is clear: this time around, they are determined not to be stuck with unwanted merchandise which will have to be sold off at deep discounts in the new year.
In many cases, inventories have fallen harder and faster than sales as companies look to reduce their cost base and boost gross margins.
To take a few recent examples of inventory cuts: Talbots (Q2) -- down 29% on last year; Neiman Marcus (Q4) -- down 23%; Tween Brands (Q2) -- down 18.5% per sq ft; Saks (projected, H2) -- down in the low to mid teens percent.
No wonder then that companies like Brown Shoe, for instance, have seen fierce cuts in wholesale revenues -- in the footwear company's case, down 21.1% in the second quarter.
Caution and conservatism
Clearly, caution and conservatism are the dominant emotions this year, and for good reason.
But if these emotions are not kept under some control, retailers could find their shelves emptying at an alarming rate during what should be the most lucrative trading time of the year.
According to the snappily titled "U.S. small and mid-market outlook 2009: Retailers and suppliers take stock of economic downturn," a report compiled by Forbes Insights in association with financial services company CIT, this year's retail picture isn't just about lean inventories.
The survey found that retailers wary of losing sales momentum to competitors were likely to discount more and earlier this holiday period -- viewing this as an easy way of injecting quick cash into their hard-pressed businesses.
Meanwhile, retail consultant Emerson Advisors suggests splitting shipments into multiple deliveries, effectively committing to purchases at the latest possible date and giving the opportunity to cancel or reduce if the trends don't look promising.
The company also recommends, where possible, holding back up to 20% of deliveries, watching demand and then sending merchandise to stores where it's selling, rather than where sales are weak.
Playing with fire
All of these tactics make sense, but they're also playing with fire. Get it right and you maximize profits, minimize expenses and those gross profit figures look rosy; get it wrong and you risk missing out on desperately needed sales.
All of these tactics make sense, but they're also playing with fire. Get it right and you maximize profits, minimize expenses and those gross profit figures look rosy; get it wrong and you risk missing out on desperately needed sales.
No retailer wants to be left with racks full of unsold stock as 2009 comes to a close, running inventories lean and mean may make economic sense, but the margin for error is wafer-thin.
Milton Waldoff note: Independent retailers have a huge advantage over chains, they can turn on a dime: -
- Jump on a plane and go to NYC on a Sunday return 2 to 4 days later having replenished their inventory into the categories and items that are selling.
- They can schedule an email or ad last minute!
- They can move the store around in a matter of minutes to feature what’s selling.
- Owners are right there to lead, motivate, follow up and sell!
Don’t lose sight of the great opportunities afford you as a independent store with one or a few stores.
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