RETAIL NOW

Good News, Bad News Ahead for Retail

By Ritchie Sayner

Advanced Retail Strategies

First the good news … at least as I write this, business has bounced back nicely for most, especially in categories where sufficient product is available. We saw many cases where July sales actually exceeded 2019 levels. Couple the sales increases with lower inventory levels and the result is faster turn and better cash flow.

Now for the bad news … the aftermath of COVID-19 has created many challenges for the sporting goods industry, and retail in general, to deal with in the coming months. In no particular order, trouble spots include finding good help (or in some cases finding any help), rising prices because of inflation, stock shortages, supply chain interruptions and rises in COVID cases in some areas of the country. When it comes to finding good people, much has been extensively covered on this topic by Management One, the merchandise planning company I am affiliated with. In the interest of brevity and avoiding duplication, I will attach a link to an interview that Marc Weiss, Management One CEO, had with Kim Pagano of Publik Image ( https://www.management-one.com/blog/recruitment-andhiring-post-pandemic). Not only will you find worthwhile ideas from this interview, but you will be able to gain access to the webinar entitled, Talent Acquisition: Finding and Attracting the Right Talent for your Retail Business. Certainly, this fall and perhaps well into 2022 and beyond, the retail landscape will endure its share of stock outs and supply chain interruptions. Whether caused by lower productivity at U.S. ports, backups at ports in China, driver shortages here in the U.S., factory shutdowns, union issues, or lack of anticipation of retail demand at the wholesale level, the result is the same, anemic assortments or empty shelves for products your customers want to buy. According to a well-respected equipment leasing consultant I have known for several years, the entire supply dilemma is analogous to a wave starting small at the beginning and getting bigger and bigger until it finally crashes into shore. According to this source, these supply chain disruptions will most likely not smooth out until Q1 or Q2 of 2022 at the earliest.

Currently the bike industry, as one example, is experiencing more than 12 months lag time from order to delivery. Some vendors, I am told, are even putting retailer purchases on allocation. I work with a relatively large bike retailer who, because of high demand and lack of product from key vendors, is turning the car-rack category 5.5 times. We’re not talking women’s dresses here folks, where I would expect fast inventory turnover, these are bike racks. Current on-order is now 3 months past due and retail prices that were $669 for a system are now going to set customers back $889, an increase of nearly 33%. This is due to not only supply and demand, but also inflation.

There are some positives that have and will continue to surface because of this dilemma. Supply chain interruptions have forced many retailers, including the one mentioned above, to develop relationships with alternative vendors. This has proven to be winwin-win for vendor, retailer and consumer. The vendor gets a chance to perform at a store that has never carried their products before. The retailer gets to keep his inventory plan intact, albeit with an alternate assortment plan, and the consumer gets the products they want. What many retailers are discovering through all of this is vendors, who in the past may not have been the first choice, are becoming valued business partners. All these issues make merchandise planning at the retail level much more challenging to say the least. Business is good - very good in many cases due to the economic rebound. An even better scenario would be if stores could schedule needed deliveries without having to book futures out a year in advance or overbuy in hopes of getting half of what they originally ordered. Many retailers are rolling the dice by deciding what categories to gamble on (i.e., athletic shoes) by committing to future buys that exceed what they would normally place, as the concern is reorders and fill in orders might well be non-existent. With business rebounding to 2019 levels and above, and supply issues impacting many products and entire categories, the question becomes how best to project inventory needs during this period of uncertainty? Hopefully you have a merchandise plan in place that incorporates sales trending to some degree. That will help you project short-term (Q4 of 2019 through Q2 of 2022) inventory requirements. One client I spoke with recently had just returned from a market, where she was counseled that if cash and space were available (both are), she would be well served to land all her Holiday goods now to make sure she would get everything needed. Given the uncertainty of availability closer to need, I think that was good advice this year. I am seeing many cases where business is currently up 50-plus percent over 2019 levels. Stores are selling everything they can get their hands on in many cases, creating faster inventory turnover and solid cash flow. My concern moving forward is that when supply chain issues level out, which they will, and sales levels normalize, which they will, is that if stock-to-sales ratios are not closely monitored by store and classification, the pendulum is likely to swing too far in the opposite direction, causing the undisciplined retailer to end up in an overstocked situation. That would be unfortunate but it is also easily preventable with accurate merchandise planning in place.

Ritchie Sayner

Sayner has spent the past four decades helping independent retailers improve profitability. In addition to speaking to retail groups nationwide, Sayner is a regular contributor to retail industry publications. Prior to embarking on his retail consulting career, he was the general merchandise manager for an independent department store in the Midwest. Ritchie is a graduate of the University of Wisconsin-LaCrosse. He is also the author of the book, “Retail Revelations-Strategies for Improving Sales, Margins, and Turnover.” He can be reached though his website at www.advancedretailstrategies.com.