The holiday shopping season may be just beginning for some frenzied Christmas shoppers as they begin a Christmas season of scaled-back shopping to stay within their tightened budgets this year. They’ve been watching the value of their homes fall, the totals in their 401K shrivel and the worries over continued employment grow. This will mean an even bleaker holiday shopping season for struggling retailers this holiday season.
According to The NDP Group, a market research firm, the largest retailers have all cut prices, some upwards of 70% in an attempt to move as much excess Christmas inventory as they could. Since early fall this year, retailers have seen their excess inventory stock pile up as consumers have essentially shut their wallets in reaction to the failing economic conditions. That entire excess inventory that they have in warehouses and back stock rooms represents Christmas inventory dollars already spent by the retailers; it is a “sunk cost”, part of the cost of doing business as a retailer. That excess Christmas inventory has no value until it can be turned back into dollars.
The selling off of excess inventory happens every year by the retailers, but it usually happens after Christmas is over. This year however trends show that stores are frantically trying to get rid of the excess inventory even before Thanksgiving. “The holiday season is over. The reason? It just never got started,” said Marshal Cohen, industry analyst at NPD Group, a market research firm. “How cheap things are doesn’t bode well for holiday.”
As excess Christmas inventory piles up in a store, retailers are forced to lower prices to be able to lure more shoppers in to purchase Christmas goods. But as the prices decrease, so does the overall value of the excess Christmas inventory they hold. It is a very dangerous cycle of life for the retail business, one that is reaching a pinnacle much earlier this year than in previous years. Retailers desperate for cash are forced to resort to liquidating some of their excess Christmas inventory before the values get so low they lose even more desperately needed cash dollars.
Inventory liquidation is quite painful for distributors, they lose money, some are emotionally attached to the product. But they have to work through the pain in order to avoid loosing all the money they invested in the excess Christmas inventory. Richard D. Hastings, a consumer strategist with Global Hunter Securities, says, “Prices are slipping too fast, and so by the time you sell the product, stores are not covering their operating expenses,” he said.
Online liquidation sites like Liquidation.com and Overstock.com are being overwhelmed with Christmas inventory from desperate retailers. At Liquidation.com, where they manage auctions to businesses that sell on eBay and Dollar Stores, there are currently 2,100 auctions scheduled for this Thanksgiving weekend time period. That number represents eight times more than last year at this time. Liquidations.com Chief Executive Bill Angrick said, “In other words, what normally happens after Christmas is taking place this weekend, this is about survival”.
At Overstock.com they are seeing inventory at double the levels from last year. Retailers are unloading top-notch selling top name brands such as Gucci and Prada at rates they have never seen before since the online service was launched. And they can expect the numbers to continue to grow with the high profile bankruptcies that have been in the news such as Mervyns LLC, Linens ‘N Things and recently Circuit City Stores Inc.
For the bargain hunting consumer this could be a dream come true. As long as you are willing to know that you may not find exactly what you want in a particular color, size or style because they may be sell out of something. But if you can be flexible and willing to hunt, the prices are going to be going lower. The cash-strapped consumer will be out there looking for the bargains and it’s likely the retailers will have them waiting.
Anne D’Innocenzio – AP Retail Writer, “For stores, the holiday season may already be over”, Yahoo Business