Size gets to matter yet again, this time when it comes to the kinds of profits certain retailers can expect this holiday season. Which translates as, “He who has the largest store or number of stores will sell the most things between now and the end of the year.” Right?
Maybe not. Bigger, alas, is not always better, as Michelangelo judiciously assured the male gender with an intentionally proportioned statue or two. But could larger operations with extra floor space actually result in lower sales numbers? Especially once the holiday shopping season stampedes into town? Is that even possible?
Yes, says a new report from CNBC. Seems that timing has as much to do with profit-taking as anything else. Even in that mad frenzy known as The Holiday Shopping Season.
Overstock what com?
The problem for too-large retailers right now looks to be an abundance of optimism, which can be traced to sentiments earlier in the year when the U.S. economy looked to finally be pulling itself out of the tank.
At that time, the CNBC report suggests, some retailers simply pulled in too much inventory. As a result, says one analyst, “There’s a whole ton of people that we believe are going to be inventory heavy.”
Add to that the fact that, inspired by the growing confidence of consumers, retailers across the board began increasing their store counts and creating more floor space. In fact, the analyst continues, compared to last year, retailers added 4% more floor space – even though the analyst’s forecast for an increase in holiday sales tops out at 2.9%.
Which even Michelangelo can tell you, sans chisel, leaves retailers holding a good 1.1% or more inventory than they’ll likely be able to sell this holiday season. Especially since consumer demand has been ratcheting down since the middle of the summer.
And there’s always the impact of online sales encroaching onto brick-and-mortar transactions.
One silver lining? Larger department stores that ordered their stuff way back in March or April are the ones more likely to be affected by the over-bought, over-improved situation. Discounters like Ross and TJX, who wind up chasing inventory, may come out further ahead, as they placed their orders later in the season.
“It’s the economy, Santa”
And then there are those old reliables, seemingly more present every year as factors to consider all across the economic board, regardless of season.
Spikes in gas prices. Dips in gas prices that inspire consumers to spend elsewhere.
However, according to one department store CEO, the recent downturn in gas prices seems to have only pushed consumers to sock away any perceived savings.
“This year’s a little bit different, I think,” the CEO told CNBC. “With the tailwind of gas prices offset by the headwinds of the payroll tax change at the beginning of the year [and] the upcoming SNAP [Supplemental Nutrition Assistance Program] benefits changes on the first of November. I think it remains to be seen how it’s going to impact our sales.”
Deep discount coupons?
But wait, you say. Doesn’t an overstock/cautious consumer scenario simply create more of an opportunity to offer slick promotions and sales? You know, the kind that have shoppers ready to give their neighbors a holiday-inspired kick in the shins for having gotten an extra 10% by waiting one more day – as the hot merchandise mysteriously disappears the day after?
On the other hand, blowout promotions can hurt retailers more than they help. The general hope in staging them? That consumers will buy other, higher-margin items on their trip to get the cut-rate blender. Or, worst-case scenario, selling goods at rock bottom prices will gain a shred of a profit and save on shipping all those unsold Egg Nog sets back to the warehouse.
To avoid those disastrous, hugely ridiculous discounts, retailers will likely get more creative with deals, possibly pitching them to preferred customers, such as charge card users.
If an early bird mentality is any indication that retailers are willing to play ball with consumers this year, consider this: K-Mart put out holiday ads a full 105 days before December 25. And even the venerable Macy’s has created a tempest in its basement kitchen by deciding to open up on Thanksgiving night, rather than on the traditional day after the turkey is eaten. Walmart and J.C. Penney plan to follow suit.
A spokesperson for the National Retail Federation (NRF) echoes the idea that retailers are poised for action this season by saying she expects promotions to be aggressive. However, she doesn’t expect those promotions to cut much into retailers’ margins.
“They have fully planned on keeping their inventories in line where they think they should be and not overstocking their shelves,” she says.
Marketing the MTA way
That, in itself, suggests that retailers know they’re going to have to be even better this year at managing consumers’ perceptions about how desperate sellers might be to seal any deals.
Especially with self-giving also projected to be down this year, to a surveyed average of $129.62 as compared with last year’s $140.43.
It’s doubtful, however, that there will be much of a consumer-retail standoff, with everyone more or less eager for some good cheer.
Even if both sides show some reluctance at the outset, it’s worth remembering Aunt Harriet’s advice for dealing with the vagaries of mass transit: “Never chase a bus. There’ll be another.”
Just don’t miss the second one, or you might find yourself fairly alone come the third.