Buying for Margin Rather than Assortment

8/4/2009

In our continuing quest to understand what Winning Retail strategies will look like this holiday season, we spoke with Richard Hastings, CCE, Consumer Strategist for Global Hunter Securities, LLC.

In good times, the assortment plan was to present (in Mr. Hastings’ words), “a tropical rain forest of inventory” when a customer walks into a store. BUT that rain forest represents a lot of cash commitments. Retailers just don’t want to tie up as much working capital anymore. Mr. Hastings also contends the emotional “pop” associated with having a full assortment has diminished because of the internet phenomenon. Cross-channel shopping can allow the retailer to fill the shopper’s order from other parts of the chain, and that “buying for gross margin” is here to stay. This philosophy was lurking on the periphery, and has been put into the center of the game for most retailers. It is worthy to note he believes Walmart is not adopting that philosophy. It doesn’t have to. While many retailers may believe it’s better to be out of stock than to take excess liquidation markdowns, Walmart can push much of that risk back on its vendors.

All in all, I found the conversation fascinating. I’m not sure I buy into this story hook, line and sinker: it feels very risky, but it was interesting to get another point of view on our under-stocked world. What do you think?

Paula Rosenblum

Comments

tedhurlbut@hurlbutassociates.com

Mr. Hastings expressed the concern that fashion innovation would not be coming out of smaller retailers and boutiques, as it traditionally has, due to the need to keep inventories tight. I'm recommending exactly the opposite to my boutique clients. Those that have tried to build a 'one-stop shop' around a look or trend have found that more basic merchandise has sat, while more fashion forward merchandise has performed better. Now, across the store everything has been under intense price and margin pressure, but fashion has held up better. The consensus has been that customers are trading down for basics. So i'm encouraging these clients to return to their roots of focusing on fashion forward merchandise, and we've seen the metrics, particularly margin (!) improve. Ted Hurlbut Hurlbut & Associates http://www.hurlbutassociates.com

posted 2009-08-04 13:34:50

paula.rosenblum@gmail.com

I think you misunderstood (or I misspoke) what Mr. Hastings said. He said that a CIT collapse (which now seems unlikely) would most affect smaller retailers and manufacturers (those that CIT factors or lends money to)...and THAT would stifle innovation. So we're all in violent agreement. Look what's happening to Target. It seems to have lost its focus on fashion (or cheap chic) and now resembles a Walmart me-too. That's a BAD place to be. Of course, the ultra high end is not a place I'd want to inhabit either, but fashion forward is always good.

posted 2009-08-04 14:51:24