By Nikki Baird, Managing Partner, RSR Research
3/11/2008
Retailers did not have a merry Christmas. Sales were anemic in total, and January and February did little to ease their pain. In fact, concern over the economy has been significant enough that on February 13 President Bush signed the Economic Stimulus Act, a $168 billion plan designed to inject new life into the economy. Individuals meeting certain income and tax requirements will receive a minimum of $300, and couples could receive $1200 or more.
The success of the plan lies in part with how consumers actually use the money, and it seems that consumers are happy to oblige. NRF conducted a survey of nearly 8,000 consumers the week before the bill was signed into law to find out what their plans are. Respondents allocated on average 40.6% of their rebates to “purchasing something.” NRF estimated that this translates into $42.9 billion of unplanned, incremental spending that would not have happened without the stimulus plan.
You’d think retailers would be all over this. It’s as big an event as Valentine’s Day, Mothers Day and Easter combined. However, the facts tell a different story: retailers apparently are doing very little to prepare for this influx of consumer spending.
RSR conducted an online survey (2/22-2/25) of 95 retailers and found that only 35% actually plan on doing anything at all to capture consumer spending from the stimulus plan. Big box retailers plan to do the most: 78% of big box specialty retailers plan to take advantage of consumer spending, along with 55% of general merchandise and apparel retailers (mass merchants, department stores). Respondents in restaurant, hospitality, and leisure retail, along with online merchants, have no plans.
Of the 35% of respondents with any plans at all, most of those plans revolve around advertising: 77% plan special promotions. But only 37% actually plan to increase inventory in preparation for those promotions, taking a big chance that they won’t stock out when consumers arrive, checks in hand.
This is not a new problem. Retailers continually cite out of stocks (hovering at 8% on a good day) as their biggest supply chain challenge. According to RSR’s research into store technology, 76% of retail respondents rated lost sales due to out of stocks as an influential business challenges they face in their retail stores.
Here’s what has the potential to be the third largest sales event of the year (after Christmas and Back to School), and retailers are going to spend money to drive traffic, but not add any product to stores?
It’s easy to blame the problem on the retail supply chain – easy, because a lot of the blame is justified. The retail supply chain, stretched across oceans and challenged to deliver localized assortments with any efficiency at all, leaves many retailers stuck with what’s already in the pipeline and on its way.
It’s hard to stomach the idea that many retailers are planning on promoting to capture the windfall spending, but won’t have any additional stock on-hand to meet the demand. Of the respondents that are planning on trying to capture stimulus plan spending, 70% expect consumers to spend $200 or less, and 48% expect consumers to spend it on consumer electronics, with another 29% expecting spend in fashion categories. Perhaps the hope is that, when retailers run out of that Wii again, consumers will just spend it on whatever else is there. Any spend is better than none, right?
It’s going to be very difficult to inject new spending into the economy if retailers don’t have what consumers want to buy. Compounding that is the painful truth that leading consumers to the store only to be out of stock hampers retailers’ future ability to attract consumers back. These out of stocks will do more than curtail the economic stimulus windfall. Future sales will be affected as well– a one-two punch that could knock retailers flat.
So what can be done? If you can’t get more inventory in the categories that seem poised to move, the answer is to re-allocate what you have and what’s coming to geographies that are better poised to take advantage of windfall spending, which depending on the quality of your customer and store data, might not be so easy to do. High-end malls or neighborhoods aren’t likely to see much of the stimulus package, so it might be worthwhile to reroute inventory away from those locations and closer to neighborhoods that do stand to gain. Also, staffing needs to be reconsidered – as the third largest “holiday” of the year, no retailer should be caught by surprise if they see a big traffic surge in May and June, and even if you don’t have additional inventory on hand, you better have the help.
Certainly, the worst thing you can do is nothing.
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