Tight Inventories Limiting Sales Gains

Business have trimmed inventories significantly--and that's starting to bite them in the sale. Here's the raw data:

There was good reason to cut inventories: sales were falling. This is a recession practice I recommend in Businomics. However, the tight inventories are now limiting sales gains.

Here's a personal example. I bought a car last spring, and now I want snow tires and wheels for it. But the tire store I love did not have my size in the type of tire I wanted.

(You may be surprised that anyone would love a tire store, but if you live in the Pacific Northwest, you know who I'm talking about. I have been a very, very loyal customer for 20 years. I don't comparison-shop other stores, I just go in and buy.)

So my fav store lost a sale. I went elsewhere. No deals to be found, so some sales are probably not going to anybody at all. By the first real snowfall, there will be no studless snowtires to be found anywhere, despite people clamoring for new tires.

From an economic standpoint, this will limit economic growth.

From a business standpoint, my favorite store has double whammied itself. First, it lost a sale. Second, it gave me a reason to go to a competitor. That's like telling your girlfriend she should date other guys--not a way to build a strong relationship.

I know money is still tight, the economic outlook is still uncertain, but if you cannot serve your loyal customers, you will have no loyal customers.

Comments

[Dave Wrixon:]

You sure its not because they have slapped massive tariffs on Chinese Tyres?

Nov 13 06:11 AM

[WS1835:]

Tight and shrinking retail inventories have peeked my interest as of late. The first observation to catch my eye was the lack of shelf depth at local retailers ranging from grocery stores to Wal-Mart. Take a close look at those shelves folks. 2-3 years ago, the whole shelf was stocked front to back with product. Every aisle and product was routinely stacked to capacity.

Over the last year, I have noticed that shelf inventory is maybe 3-4 rows deep with the back third of the shelf left empty. The other day I was in a large Wal-Mart and noted that even a common name brand item like a box of S.O.S. pads were only stack two deep. In a super Wally World, there were only two boxs of S.O.S. pads. As I looked around the household cleaning supplies aisle, this was not isolated. The shelf inventory of all the cleaning supplies were only 2-3 deep. When you consider how much shelf space is contained in a modern big box retail store, leaving the back 1/2 of a shelf empty represents a huge reduction in iventory.

Another trend I have noticed just in the last 6 months, is a noticeable reduction in total shelf space itself. My local Wal-Mart and Safeway (grocery chain) stores just adjusted their floor plans and both stores noticably reduced the number and length of aisles in the new floor plan. And no mid-aisle displays at all. None.

Personally, I love the wider aisles and nice open floor space, but I can not ignore the fact that after the adjustment there is easily 10-20% less shelf space in the store. And considering that the stores have physically removed the extra shelves, it would appear that the retail planners don't expect sales volumes or inventory levels to rise any time in the near future.

Nov 13 03:07 PM