Retail Trick or Treat
As Halloween approaches and retailers prepare for the holiday selling season, most are planning their stock levels very cautiously. For retailers, it's a prudent approach, but it's not the only strategy they can pursue.
In my travels last week, I visited a major mid-tier department store. It was the first time I'd been able to get into their stores since before Labor Day. What I saw caught me a bit by surprise.
In the last month, nearly every other retailer I've visited has had leaner inventories than anytime in recent memory. Like most of the industry, these stores have taken the prudent approach of holding the line on stock levels and assortments in an effort to avoid the major markdowns that were rampant after the holiday selling season last year. They are also hoping that leaner inventories creates a greater sense of urgency with customers so that they'll buy earlier, and at healthier margins.
But this one retailer clearly has taken the opposite approach. They were as full as I've ever seen them, in stark contrast to their competition. Every rack was fully stocked and assorted, every shelf full. What's also noteworthy is that just about everything was on sale, with sale toppers forming a sea from one end of the store to the other.
Their strategy is clear, and confident. It's also pretty high-risk. They're betting that the consumer is going to be ready to spend, that they are well-positioned as a trade-down alternative for many consumers, and that they'll be able to pick up volume (and market share) when their more cautious counterparts come up short on inventory.
As it is, their inventory precludes holding the line on early-season discounts. With their inventory levels, they'll be selling at significant discounts, whether the customers come or not. The discounting is a hedge on all of that inventory.
This is not a strategy that I would recommend to independent retailers, as tempting as it might be. In my judgment, the downside risks are far greater than the potential upside return. This retailer has the financial wherewithal to place such a bet. Most independent retailers do not.
If they turn out to be right, and customers turn to them for their greater depth and breadth of assortments, they'll be one of the season's big winners. If they're wrong, they'll be swimming in goods come Thanksgiving, and the additional markdowns will savage their margins. This is retail trick or treat, except that we won't know for sure whether they'll get the trick or the treat until after Halloween.