Customer Choices to Take Holiday Hit

The answer for many retailers to counter last Holiday season’s margin killing discounting is to slash inventory. According to a story in the Boston Globe, Saks Fifth Avenue has cut inventory by about 20 percent, JCPenney by 14 percent and Wal-Mart by about 6 percent. The thinking on the side of retailers is that they are willing to run low, or even out of stock, rather than be left with a pile of discounted merchandise. The message to consumers is that, “if you don’t buy it, it’s not going to be there next time.”

Some experts disagree with the strategy saying the smaller selection will chase the customer away. One statistic in the story says that 40 percent of chief financial officers at leading retailers say insufficient inventory is the biggest risk to holiday sales.

Retailers are turning to their websites to soften the blow to consumers. They are not carrying any more inventory, but they are hoping that their websites will allow them to better manage and distribute inventory.

This strategy is risky for the retailers. The consumer, not being able to find what he or she is looking for, is almost always turned off and won’t reward the retailer by following up on the web. Those that do follow up on the web may prefer on-line shopping and stop visiting the store altogether.

Those who are going to attempt to manage a tighter inventory should consider the cost of brand loyalty and proactively take steps to be ready for the customer service challenge. Making it harder to find an item is almost never a good tactic to attract and retain good customers.