What stock has to do with it

Did retail sales suffer from merchandise shortages?

by Jan Wondra

It’s generally accepted that if you wait until Christmas Eve to begin your holiday shopping, the odds of finding that perfect pair of slippers for dad, the exact doll that can converse in three languages for your granddaughter or the hiking poles your mountain-climbing son has his heart set on are significantly reduced. What isn’t expected? That when you start your shopping in early November that the exact same thing could happen. That’s because the consumer shift to online shopping has been perpetuated, say, insiders, by retailers themselves.

Retail stores, which have seemed in a perpetual sale mode for the past several years, have conditioned customers to wait for a sale, which often feels as if it occurs about every week. By doing so, some say that retail brands have created a margin squeeze, made worse at the retail level because of fixed store overhead expenses, such as leases, stock delivery costs and sales force investment. Major retailers have been better able to hold margin levels in their online operations, so there has been a general trend toward warehousing stock to fuel eCommerce operations. While most retail store managers don’t want to admit it, the lack of stock – colors, sizes, styles, etc. – in the store can damage store sales.

“We’re down several hundred thousand dollars of stock,” said the frustrated store manager of a major national brand heading into the holiday season, who asked to remain anonymous. “How can you make even last year’s numbers when you’re being given less to work with? You can’t. They tell us to tell the customer, just order it online. So we get the (online) returns, and it takes up the time of my salespeople, but we don’t have the stock to make the sales.”

While retail stores struggled, eCommerce and other non-store holiday sales grew 9 percent to $105 billion, continuing a shift from brick-and-mortar sales to online purchasing. While this is still just one-sixth of all retail sales, which came in at $626.1 billion for the Christmas holiday, according to the National Retail Federation, it is siphoning off retail sales, pushing customers who might still want to shop locally, into eCommerce.

The trend is not occurring evenly, in part because some major malls have protections in place which protect their shopping areas.

“Most of our stores fall in the class A division, meaning they are required to stock their stores at the top levels with their A-level merchandise,” said Pam Kelly, senior general manager of Park Meadows. “We have so many stores at Park Meadows that range from being the No. 1 store in a chain to one of the top 10 or in the top 10 percent. We take store stock seriously. We recently parted ways with J.Crew because they weren’t giving us the A-level merchandise as our leases require. Their lease was up the end of January.”

Other mall areas, which aren’t as powerful as Park Meadows (considered a regional mall that calls itself a “retail resort”), aren’t as lucky. Smaller shopping centers have the brand names but often get a fraction of the stock of a larger mall. Customers trying to shop retail unwittingly help smaller malls, often returning at larger stores, where they may believe they have a chance of switching for the size or color they need.

Aspen Grove, owned by DDR, doesn’t own enclosed malls, and refers to its shopping centers as “power centers.” It has a policy of not commenting on the terms of leases with tenants. Broadly speaking, it is aligned with merchants that recognize the importance of, and are actively expanding, what are called omnichannel retail platforms – incorporating both eCommerce and retail activity.

“Brick-and-mortar sales feature margins that are more favorable to retailers, and therefore more profitable, because there are no customer shipping costs, unlike pure online sales,” said Aspen Grove Marketing Manager Brandon Glenn. “Retailers with brick-and-mortar locations experience higher net sales via their online transactions than pure-play eCommerce companies do—when customers return online purchases to stores, they often purchase more merchandise while in the store, an opportunity that pure-play eCommerce merchants don’t have. The result is that for every $1 of online sales, brick-and-mortar retailers that offer in-store returns net 95 cents, while pure-play e-commerce companies net just 77 cents.”

Another protection for some shopping center areas is their mix of unusual or independent shops, a strategy that The Streets at SouthGlenn have deployed successfully.

“The Streets at SouthGlenn and Centennial Promenade are our largest shopping centers and we’ve worked hard on the retail mix,” said Centennial Mayor Cathy Noon. “Retail fuels itself – a vibrant mix and unique shops attract more retail, protects stock levels and more activity and supports the local economy. People want to be where things are going on; it’s self-fulfilling.”

Many retail malls and shopping centers have recognized the importance of helping their merchants preserve retail sales traffic. Aspen Grove regularly holds events that help to drive traffic and enhance sales.

“The first Saturday of each month between May and October, Aspen Grove holds an event called “A Paris Street Market,” which is an open-air, vintage, antique and artisan market that features many local vendors,” said Glenn. “During June and July, we hold several movie-watching events called ‘Family Film Night.’ Shopping centers like Aspen Grove serve as more than just a commerce portal for retail, but also as a community cultural hub…this type of engagement offers something that online merchants can’t, which gives us great confidence the long-term viability of the brick-and-mortar retail business.”