News and Views
 

- December 19, 2008 -

 

Retailers Not Prepared for Bad to Worse Turn

 
 

BrainTrust Panel Discussion Questions: How Bad was the Fall Season's Inventory Story for Retailers? Are Merchants in Danger of Discounting Themselves Out of Business this Holiday Season? Is there a Better Way to Deal with Excess Inventory Going into the Holiday Season?

 
 

 

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Each business morning on RetailWire.com, retailing execs get plugged in to the latest industry news and issues with key insights from a "BrainTrust" of retail industry experts. Here are excerpts from one of these unique RetailWire online Discussions, along with results from RetailWire.com's Instant Polls.

 
       
 
 
     
 

By George Anderson, Editor-in-Chief, Associate Publisher, RetailWire

Retailers had cut back significantly on inventories heading into the fall season knowing ahead of time that, while the weather might get brisk, business was going to be anything but.

But as prepared as they may have thought they were, many retailers were caught off guard as sales went from expectedly bad to a whole lot worse. Reduced inventory levels still left way too much stock on the floor and in back rooms as double-digit declines hit home in September and October.

The end result, a recent New York Times report pointed out, is that many stores are left with trying to move out fall merchandise as Christmas merchandise is being delivered.

"I've never seen as many 'percent off the entire store' promotions as we're seeing right now," said Kimberly Greenberger, a retail analyst at Citigroup. "What we're hearing anecdotally from different retailers is that when they're putting something on sale at 30 or 40 percent discount, it is no longer having an effect on consumers. They're having to cut prices 50 to 60 percent to get consumers interested.

"Ms. Greenberger told the NYT that retail chains including American Eagle, Ann Taylor, Bath & Body Works, Chico's, Gap, J. Jill, Talbots and Victoria's Secret, have cut prices on their entire lines and, in some cases, offered 'buy one and get another half off' deals.

While it is important for retailers to move merchandise, the type of discounting being practiced now could have serious negative consequences, according to some.

Marshall Cohen, chief industry analyst for the NPD Group, said retailers normally expect to discount about a quarter of store merchandise. By expanding the amount of items on sale, he said, stores risk running out-of-stock on popular items early into the holiday selling season.

"What's happening is the retailer is almost saying, 'Please just come in. We'll pay you to shop,'" he said.

Discussion Questions for the BrainTrust Panel: How bad was the fall season's inventory story for retailers? Are merchants in danger of discounting themselves out of business this holiday season? Is there a better way to deal with excess inventory going into the holiday season?

RetailWire Instant Poll Results: 

RetailWire BrainTrust Comments:

It's very difficult to place any blame for being over-inventoried on any retail planner this year. The drops were unprecedented and therefore impossible to forecast. In any case, there's too much inventory out there.

So, given the above, the real question is; what of Holiday? October is usually a key indicator of what December is going to look like. But, my prediction is; NOT in this case. I don't think December's going to be as bad as we think right now. Again, there's really no reason to shop in October in the first place so, if retail was ever going to 'crash', October (or perhaps January) would be the month. But December? No matter how bad things are, there's a reason to shop that month...we all will be out there buying, it's just what we do. Will it be bad/worse than last year? Yes. Will it be as bad as we think right now? No. Nothing can top last month's debacle. Plan on it.

Merry Christmas, retail!

Lee Peterson, Vice President, Creative Services, WD Partners


Richard Seesel, Principal, Retailing in Focus LLC, Says:
If your store has routinely driven traffic through 30-40% discounts, how low do you need to go in order to attract attention? 

What do you say? Send us your comments here

As to the deep discounts: At least for stores pursuing a high-low promotional strategy (think Penney, Kohl's, Macy's), the depth of discounting doesn't seem out of the ordinary. And that may be a problem: If your store has routinely driven traffic through 30-40% discounts, how low do you need to go in order to attract attention? And, at the end of the day, did you have the right content and depth of key items that the consumer wants this year?

Richard Seesel, Principal, Retailing In Focus LLC


We have a problem in this country whereby credit has become the main media in tendering most sales, both on the wholesale, as well as the retail level of business. The credit is gone, and while this situation was in fact predicted as being inevitable a few years ago, most people ignored the warnings. Including retailers.

So, now we are in a situation where many of us have no way of buying new stock, and no one buying the stock we have, unless we are willing to sell at a discount. Tightening cash flows do not bode well for KPIs. Unfortunately, while cutting a price below cost may put cash in the drawer, it also reduces your ability to buy replenishment, which also affects your future sales figures. I see too many stores offering discount prices that really have no sound basis to do so. People are going to buy what they need in a down economy, no matter the price, instead of what they want.

I believe it makes more sense to sit on slow moving product and concentrate on the staple items that drive a store's business. Discount products that have a shelf life coming to an end, perishables and dated products such as software and fad-related items, but limit the discount policy to what one would normally expect discounts on.

Statistics show that consumer borrowing started to rebound in September, but the flow of credit was not going towards spending, but rather towards debt realignment, such as paying off larger balances on cards with high interest rates. Things will turn around and the market will rebound, and those of us who stay the course and refuse to act in panic will come out ahead of the game in the long run.

Dan Soucy, Sales Manager, Big Lots Inc.


Through September, I felt that many retailers had done a pretty good job scaling back their inventory levels after the excesses of last year. Then business simply rolled over in October in an unprecedented way. Now, when I'm out shopping, many of those retailers don't look quite so sharp.

It's still too early to tell if October was an aberration or a harbinger of things to come. I'm hopeful that October represents the bottom, and that the holiday season will hold some upside surprises. But I'm an optimist by nature.

The challenge for retailers is going to be in how they adjust their spring purchases. I would anticipate that they'll be cutting back further in order to protect their cash positions. I think that even the category leaders are likely to be far less aggressive in using the recession to expand market share than we've seen in the past.

Ted Hurlbut, Principal, Hurlbut & Associates

Read the entire story and RetailWire discussion at:

http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13364

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