While the shift back toward at-once ordering and just-in-time deliveries has been going on for the last couple of years, it is clearly accelerating due to the tighter credit market and consumer slowdown. And vendors remain clearly concerned about how the trend toward fewer pre-season buys is reshaping futures programs — and their own ability to finance the business.


The changes in how retailers are purchasing product for resale were explored as part of the most recent monthly SGB Question.  For retailers responding to the Question, it's become even more necessary to reduce inventories to the minimum to preserve cash flow and meet lender requirements in today's troubled economic climate. 

 

According to several responses from retailers, many are increasingly foregoing the often deep discounts offered in pre-season bookings to avoid being stuck with huge markdown risks at the end of the season.


But stores have been pushing for better at-once programs for years. Buying closer to the season and even in-season helps buyers make more accurate buys around consumer demand and reduces markdown risks. Working on leaner inventories also enables retailers to chase hot product instead of waiting for last-seasons' slow-sellers to liquidate. Finally, frequent in-season deliveries help stores manage their cash better.


“Our company is doing less pre-season ordering, and we plan to do more inventory turns,” said Bruce Grell, owner at Healthy Habits Bicycle Shop. “With the economy the way it is, there is no other choice. Building up a large inventory, and risking having to dump it later with no profit hurts us and the industry in general.”


But many retailers claim vendors have been reluctant to share the inventory risks and build up adequate in-season inventories to meet their fill-in needs.


“The retailers have to have more support from the manufacturers on having replenishable merchandise rather than up front orders where the retailer takes all the risk and financing responsibility,” stated a head merchant at a major regional full-line sporting goods chain.


Another buyer for a nationwide specialty chain said he would rather use more fill-in orders to chase sales, but has to pre-book orders nine months out to get enough quantities for the season because of vendors holding only minimal in-season stock. Since he doesn’t believe in canceling orders, his only option when inventories build up is to push out deliveries until the old inventory sells.


David Stickler, a buyer at Buckeye Outdoors, believes a retailer loses on terms, discounts and freight by using at once/fill-in orders versus programmed futures.


“Any programmed order can be revised based on turn, consumer preferences or economic conditions,” said Stickler. “It takes more diligence on the retailers' part; on keeping track of future orders.”
Indeed, while some vendors see this primarily as a shifting of inventory exposure from retailer to supplier, a few also believe the shift away from futures programs will ultimately hurt product development.


Brad Gruber, national sales manager at Grendha Shoes Corp, the distributor of the Brazilian footwear brands, Grendha, Rider and Melissa, said that with vendors being forced to forecast narrow and deep, there will be little differentiation between retailers and margins will consequently suffer.


“This ‘no risk, no reward’ attitude will not help anyone gain market share and creates an environment of sameness which prevents the growth of a potentially hot item or brand,” said Gruber.


Eric Tung, president of FERA Intl. Corp., the skiwear and outerwear company, said that while retailers may feel more at ease with less inventory, fill-in orders may not be met if demand is sudden and quick. “There are limits to how fast product can be packed, shipped, delivered, and out on the floor. So there is greater risk for the retailer of lost sales,” he said.


Futures programs also provide the discounts that bring coveted high-margin buys to retailers. But a director of global merchandising for a major footwear supplier noted that the loss of this high-margin product will ultimately be offset by safer and better purchasing decisions being made closer to consumer purchase.


Many respondents speculated on what an environment increasingly driven by quick response would entail. One independent rep for outdoor brands said that a push towards more at-once orders will put more pressure on suppliers’ in-house staff.


“As the order activity by dealers starts to increase exponentially, customer service departments will realize a sizeable increase in phone, fax and email volume; taxing those resources or possibly requiring additional resources,” he said. “Manufacturers will need to find ways to allow retailers access to inventory visibility and order processing outside of traditional business hours. 24/7 sales order management will become the required norm.”


Chris Roberts, another rep active in the outdoor industry, believes the over saturation of products across the board will slow dramatically and become a much more calculated process. “I also think it will be imperative to gain accurate pictures of what the true consumer usage is, as it has been inflated for some time,” said Roberts. “Hopefully these tough times will remind us that sustainability is what is important, not quarterly profits as we have so often seen in the recent past.”