Tough times call for prudent inventory management at retail. But is the industry overdoing it?
But after undergoing a brutal downtown, still unsightly unemployment and consumer confidence figures, and a fuzzy view on the extent of any second-half bounce back, the market apparently remains committed to conservative inventory planning — even if it means giving up potential short-term gains.
While it seems like the market is perpetuating a self-fulfilling prophecy, it is exactly what many Americans are doing to get their own financial house in order — and what many would suggest the U.S. government should do as well.
“Inventory is a retailer's and a vendor's largest physical asset,” says Jim Hoff, VP of sales at Asics America. “The conservative positions retailers or vendors are making is an indication of the concern for the economic times we are in. Fear of failure is greater than reward for risk.”
“I believe most retailers are even more focused today than in 'normal times' on managing their inventories to ensure that they are aligned with the sales trends,” says Keith Daly, president and chief executive officer of Foot Locker U.S., which includes the Foot Locker, Kids Foot Locker, and Footaction USA retail nameplates. “In general, the overall reduced inventory levels in our sector should benefit all athletic footwear retailers in the future.”
But the measures taken by many of the largest retailers in the market also risks creating more “terminal sameness” across the retail landscape as retailers all move to reduce risk and focus on the same key products from the same key brands. Can a footwear market that was built on innovation and fashion trends survive by selling Air Force 1s and Chuck Taylor All Stars?
With many vendors equally conservative on inventories, the industry still faces unavoidable limits getting back into product given the long lead times for just about every category outside fan apparel, according to analysts.
Matt Powell, senior retail analyst at SportsOneSource, believes the overall cautiousness is hurting new ideas.
“New brands and products are the lifeblood of our industry and should not be overlooked,” observes Powell. “New items and categories are part of leading us out of this mess. However, the tests must be small and controllable.”
He likewise believes the over-reliance on replenishment will result in “'plain vanilla' assortments with no excitement. There needs to be a balance here.”
A gradual recovery is expected. With easy comparisons against Holiday 2008 and perhaps some pent-up demand, a healthier fourth quarter could pave the way for buyers to increase open-to-buys as well as for banks to lower credit restrictions for a meaningful pickup in Fall 2010.
Jim Duffy, an analyst at Thomas Weisel Partners, believes much of the new conservatism around inventories is cyclical in nature. Once a few retailers succeed by chasing hot product with orders, the rest will soon follow.
“Right now fear seems to be driving the day,” says Duffy. “If we see a pickup in demand, and it seems that revenue and margins are easier to come by, you'll probably see it swing back towards greed.”
For additional details on Sporting Goods Sees 2009 as Year of the Margin, look for this week's issue of Sports Executive Weekly.
