CHICAGO • This holiday season, retailers are making a list, checking it twice and then ordering less for American shoppers.
With foot traffic at their stores in decline, department stores that would have stocked up for the biggest shopping season of the year months ago are still placing orders, said company officials, vendors and consultants who advise such chains.
The strategy is to keep inventory costs down and avoid the experience of past holiday seasons, when large piles of unsold stock led to deep markdowns that eroded profits. But these retailers risk losing sales if supplies run out at a time when many are struggling to keep up with Amazon.com and a steady shift towards online shopping.
Macy's, J.C. Penney, Nordstrom, Dillard's and Lord & Taylor are buying in smaller batches with shorter lead times, relying on a more dynamic demand forecasting process than in the past.
Keeping inventory levels low may also instil urgency in consumers to spend now rather than hold off on purchases in search of a better deal, noted the sources. But it also risks alienating customers who may end up having less choice and is also putting a strain on vendors to deliver on shorter lead times.
The high-stakes strategy takes a page from the playbook of Inditex-owned Zara, Hennes & Mauritz (H&M) and other so-called "fast fashion" retailers that keep low inventories of trendy clothes and try to win customers with cheap prices.
Traditionally, retailers lock in most purchases nine months to a year in advance. This year, they started placing a large portion of holiday orders three to four months before the festive season and are refreshing fast-selling items in as little as six to eight weeks, vendors said.
"There is a big push from department stores across the board this year to cut lead times and manage inventory tightly," said Mr Robert D'Loren, chairman and chief executive of US-based Xcel Brands, which supplies branded apparel to chains such as Lord & Taylor and Dillard's.
The risk for department stores is whether suppliers can keep up with the new approach. They rely on vendors whose traditional supply chains are not built for a fast turnaround because they handle orders for several brands.
Fast-fashion chains, on the other hand, have designed their supply chain to shift on a week-to-week basis versus the traditional four for department stores, and work with vendors who can deliver quickly on private label items they stock.
As a result, some smaller vendors of traditional department stores struggle to adapt to requests for shorter lead times. "We are refusing to take (last-minute) orders. We just don't have that kind of idle capacity in our factories, our production lines. Cargo delivery contracts are not built to react that way," said a Bangladeshi supplier to J.C. Penney and Kohl's.
So far this year, retailers have been willing to sacrifice some orders for tighter inventory management. "Between the risk of a lost sale and the risk of a loss of margin, department stores are willing to lose the sale this year," said Mr Greg Portell, a consultant with AT Kearney who advises retail chains.
Retailers are optimistic about their new strategy. Macy's expects a "marked difference this holiday versus last" in the way it buys stock, chief executive Jeff Gennette said in August. "We definitely are buying closer in... to make sure we have the right goods in time for holiday, but not too far in advance."
To be sure, ordering closer to demand can help a retailer cope with weak consumer spending, but it cannot offset its negative impact altogether.
While consumer confidence has improved overall, the National Retail Federation cautioned last month that US consumers will remain hesitant to spend until there is more certainty about policy changes on issues such as taxes and trade. The trade group estimated holiday sales for the US retail industry will grow between 3.7 and 4.2 per cent this year, from 3.75 per cent last year.
"(Retailers) simply don't want to be stuck with excess stock. It takes up working capital and that was okay when times were good, but not when things are this tough," said Mr Neil Stern, partner at McMillan Doolittle, a consultancy which works with retailers.