Is it Wise for Retailers To Keep Inventory Lean This Holiday Season?
It’s a tale of two narratives: Adobe is projecting record-high holiday spending this year, topping $275 billion and up 6.7% year-over-year – meanwhile consumers are showing increased wariness by all accounts, and the ongoing inflationary and tariff concerns continue to exert pressure on both shoppers and businesses serving them.
One major outcome of this confluence of factors, as Retail Dive’s Daphne Howland underscored, is that consumers are displaying intention when it comes to their upcoming holiday buys (and that more than half of consumers believe their increased spend has more to do with price hikes than higher consumption writ large).
“As they shell out more for essentials like groceries, fuel and other bills, consumers are tackling their holiday shopping lists from different angles,” Howland wrote.
“To stretch their budgets, they’ve started sooner — as early as this summer. More than a third of shoppers bought items for the holidays during sales events over the summer, and 30% anticipate starting earlier than they did last year, according to Ibotta’s research. More than twice as many people did holiday shopping over the summer months this year compared to last year, according to Accenture,” she added.
Leaner Retail Inventories Could Anger Customers, But Is That an Acceptable Risk?
With so much front-loading going on when it comes to Christmas presents and other holiday buys, a record-setting holiday spend being issued forth by consumers may come as unexpected. However, there’s another interesting aspect to the season, per Phillip Blee, consumer equity research analyst at William Blair: inventory and the potential for out-of-stocks.
“Everyone’s a little bit concerned that inventory is light, and that out-of-stocks could happen,” Blee said, describing retail inventories in the lead-up to this holiday season as lean.
“So I think consumers want what they want, and value is important. But value doesn’t mean just deep discount or low price, right? The consumer wants the quality product, and they want it at the right price,” Blee added.
Finally, the analyst took a step back to discuss the bigger picture concerning trade headwinds, retailer inventory, and the potential to disappoint at least some customers.
“Especially with transportation costs being so high, input costs being so high, tariffs being all over the place, I think that there’s a lot of risk for them to take on with inventory. So I think that they’re feeling very much… that they need to keep inventory light. I think that they would prefer to potentially miss out on a little bit of sales in order to avoid an inventory glut at the end of the season that would require high clearance rates on an already very expensive product.”
Questions for further discussion:
Is it wise for retailers to adopt a lean inventory position for this holiday season? Will the negatives (out-of-stocks) be strategically acceptable, broadly speaking?
Which retailers or brands do you foresee being impacted most negatively by taking this position? Conversely, which could be sheltered from negative consequences even if they do hold less robust inventory?
Do you foresee leaner inventory becoming a retail business standard concerning not just the holiday season, but on a year-round basis? Why or why not?