BrainTrust Query: Managed Scarcity
by Ted Hurlbut, Principal of Hurlbut & Associates
a year now, independent retailers of all shapes and sizes have been
struggling with weak sales, deep markdowns and the question of how
they’ll ever be able to get customers to pay full price again. At the
same time, they’ve drawn down inventories to align stock levels with
sales, reduce markdown exposure and maintain positive cash flow. Throughout,
as inventories have been reduced, there’s also been the hope that lower
stock levels would begin to put a floor beneath prices.
New York Times noted
how luxury retailers such as Saks, Neiman Marcus and Nordstrom are
working on sustaining full retails through a conscious strategy of
M. Tansky, president and chief executive of the Neiman Marcus Group,
told the Times,
“We’ve told our customers that the availability is less than they’re
used to seeing in the stores. We’ve suggested that it would be prudent
to shop early.”
out of stock on a number of hot items people want,” Stephen I. Sadove,
chairman and chief executive of Saks, said. “Our associates are telling
people, ‘If you want this item in your size, we only have three of
them, we only have two.'”
likely, these retailers have actually planned for slight sales decreases,
given the economic environment. But their sales plan is composed of
more significant unit sales decreases combined with a recovery in average
selling prices. The impact of such a plan, however, would not be slight.
Higher average selling prices lead to greater margin percentages, which
on a plan calling for a slight top line decrease will generate a nice
increase on the margin line.
is important for independent retailers, who tend to specialize in discretionary
merchandise, and who have been struggling to command full retails and
full margins. In
an environment where significant top line increases just don’t appear
to be in the cards, a strategy of managed scarcity — of planning for
lower units sales offset by higher average selling prices — makes a
lot of sense for many independent retailers.
article was followed by challenging November sales figures for luxury
department stores. Comparable store sales were down 26.1 percent at
Saks, and 7.5 percent at Neiman Marcus. Nordstrom, able to buck the
trend, was up 2.2 percent.
to make of all this? My reading is that the strategy of managed scarcity
was not enough to overcome continued weak demand and consumer resistance
to full retails. Limited supply did not lead to higher prices; rather,
higher prices led to weak unit sales.
November sales results are a key leading indicator for independent
retailers. They suggest that as we move into 2010, the macro-economics
will still be weak and consumers will still hold the upper hand. Skillful
inventory management will remain vitally important, and cash flow will
remain of paramount concern.
Questions: What do you think of the efforts by many luxury retailers
to stem markdown pressures and regain full-price selling by purposely
limiting quantities? Should independent retailers pursue this strategy? Is it too soon for such a strategy for both luxury chains
Scarcity – Watching Saks – Hurlbut
Scarcity – Part Two – Hurlbut Associates
Scarcity – An Update – Hurlbut