Retailers seem to be behaving quite strangely before the upcoming holiday season. They are creating lists, double-checking and ordering less than usual for the American shoppers. There has been a noticeable decline in the foot traffic of numerous department stores in the country. In the usual scenario, these stores might have stocked up months ago to handle the buzz of holiday shopping; but not this year.
Department stores adopt new strategy
The new strategy adopted by the U.S. department stores is aimed at keeping the inventory costs at a minimum. These stores also wish to avoid their unpleasant experiences from the earlier holiday seasons that had huge piles of surplus stock left behind. This scenario had ultimately led to steep markdowns and the whisking away of profits.
However, the retailers are also facing a significant risk of losing sales, in case supplies are short and buyers turning to online competitors like Amazon for holiday purchases.
Department stores are typically dependent on vendors. The standard supply chains of these vendors are not designed for a quick turnaround since they need to manage orders for multiple brands. On the other hand, fast-fashion chains have built their stock supply chains to facilitate shifting on a weekly basis.
No compromise on profit margins
So far into 2017, traditional retailers have shown the willingness to sacrifice a few orders to allow for better inventory management. According to Greg Portell, who works as a retail chain consultant at AT Kearney, department stores have picked the risk of losing sales over the risk of losing profit margins this year.
It seems that retailers are hopeful about this new strategy. It was reported that Macy’s is expecting a huge change this holiday season as compared to the previous one with regards to how it purchases stock.
While there is an overall improvement in consumer confidence, the National Retail Federation announced that consumers in the United States will continue to remain slightly hesitant about spending till there is greater clarity about trade and tax-related policy changes. According to the trade organization, the holiday sales in the American retail industry will show an increase of 3.7 to 4.2 percent this year. The sales growth in 2016 was 3.75 percent.
Retailers really don’t wish to handle surplus stock because they cannot afford to lose out on working capital anymore.