Retailers — gun-shy from '08 holiday sales meltdown — going lean

Holiday bargain hunters waiting for a rerun of last year's 70 percent or better discounts shouldn't get their hopes up.

"Unlike the surprise of last year's disaster, our inventory is lean and mean," said Carol Kalman, co-owner of Next Step and New Balance shoe stores in Tampa's WestShore Plaza. "We didn't take a flier on styles we aren't sure will sell."

"Customers who wait for lower prices might find stores short of what they really want," added Steve Knopik, CEO of Beall's Inc., a Bradenton chain with more than 500 department and outlet stores.

Retailers have made similar claims at the start of past Christmas shopping seasons, but there is ample evidence this time that stores won't be as desperate to drop prices as deeply to move unsold goods.

Last year, prices collapsed because stores bought too much, then watched shoppers slam their wallets shut after the October financial markets meltdown. This year, stores cut inventory in advance to match reduced spending.

The holidays account for up to a third of revenue and half the annual profit for apparel retailers. Toy stores and jewelers get half their sales from Christmas gift giving. So higher credit card interest rates and the foundering economy prodded cautious retailers to avoid a repeat of last year's debacle.

Apparel chain inventories are 8 to 13 percent below where they were a year ago, says NPD Group. At Banana Republic, inventory has been cut 30 percent. At Saks Fifth Avenue it's 18 percent less, and the priciest goods have been reduced from a third to a quarter of the selection.

"Reduced inventory allows us to offer more fresh goods than normal for the holiday," said Karen Houget, chief financial officer at Macy's Inc., which bought 7.5 percent fewer goods this time.

Only a third of apparel sells at full price. Surveys show customers expect a minimum of 20 to 30 percent off. So, planned 25- to 40-percent temporary promotional price cuts that have been used to woo shoppers out of their lethargy will get better as the season wears on, but nothing like the clearance giveaways of 2008.

"You're not going to see those 75-percent-off deals or 60 percent off the entire store this time," said Marshal Cohen, chief industry analyst for NPD Group.

In Florida, where the jobless recovery has been worse than in many other states, chains reined in their holiday inventory build-up even tighter.

"Things still look tough in Florida," said Supna Shah, a partner at Retail Eye, a research firm that shops malls to track pricing and discounting for hedge fund investors. "I saw a lot of fall merchandise still in stores there."

Tampa Bay area shoppers can find some deep discounts on leftover fall items. Dillard's and SteinMart last week advertised 70 percent discounts on unsold fall goods. But with reduced inventories, most stores are unlikely to cut prices to that level on the majority of winter items in the coming weeks.

Merchants can make stores look full regardless of the inventory, so inventory reductions are invisible to most shoppers. The key to profit is how quickly goods sell. So stores are more concerned with how little time it's on their shelves — and financial ledgers — rather than a supplier's.

JCPenney, for instance, lost $2 billion in profit to clearance sale markdowns last holiday season. This year the chain held back delivery on 60 percent of its holiday inventory. The store wants to measure actual demand before ordering delivery on the rest. Last year it held back only 20 percent.

Streamlined inventory is one of six major changes to watch in this uncertain holiday shopping season. Here are the others:

Shoppers look elsewhere. Most shoppers plan to spend no more than last year and purchase fewer gifts. To make ends meet more shoppers (65 percent compared with 58 percent a year ago) plan to make some gifts, according to Big Research. That gives a boost to craft, food and candy stores. And one in 10 shoppers plan to buy gifts at thrift stores, an industry that researchers last year thought too small to track.

Rigid frugality is so last year — splurge a little. Fashion retailers see some parents deciding it's okay to buy for themselves again. Researchers uncovered enough of them to label the phenomenon: "frugality fatigue."

The $10 toy war spreads. Normal pricing wars on toys got more intense sooner and spread to books and DVDs. Amazon.com and Walmart.com dropped best-selling hardcover book prices below $9, triggering calls for a predatory-pricing investigation from smaller rivals. Then Walmart.com dropped DVD prices a penny more to beat Amazon's $8.99.

Target and Toys "R" Us rushed to cut prices after Walmart dropped prices on 100 toys to $10 or less, then launched a second round of 20 to 30 discounts on many higher-priced toys. Even the hottest toy this year — the hard-to-find Zhu Zhu Pets Hamster — is priced at $7.99.

Where are bigger ticket items?

"This year we see people buying video games rather than video game systems, books and music rather than digital players," said Ellen Davis, a vice president at the National Retail Federation, which sees signs of a more confident shopper, but no sales increase until unemployment improves.

Shoppers waiting longer to shop. Surveys show that 16 percent more shoppers are refusing to start holiday shopping until Thanksgiving. So planned-in-advance Black Friday promotions will be noisier than ever.

Online on the rise again. After declines each quarter since Christmas 2008, online retail sales are forecast to ease back into the black this season.

"We've clearly hit bottom and will see some modest growth," said Gian Fulgoni, chairman of comScore Inc., which monitors every click of 2 million Web users. "It will be driven by an easy comparison to last year, not any strength in consumer spending."

Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.

Retailers — gun-shy from '08 holiday sales meltdown — going lean 11/14/09 [Last modified: Friday, November 13, 2009 9:34pm]

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