If stores this year seem picked over with only the fancier stuff remaining, don't be fooled into thinking you just missed a crazy sale. It's no accident. The retail industry expects growth and profits in 2010 won't come as much from opening new stores as from merchandising the existing ones to the hilt -- with less, but more exclusive merchandise. So prepare to go from store to store and look at leaner shelves stocked with more private labels. And retailers will be watching carefully what you're buying.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% At the National Retail Federation's annual conference, retailers were encouraged by the better-than-expected holiday season sales, but were cautious about the prospects for the future. So a lot of the same caution that they used in stocking up for this past holiday, which merchants say is paying off in much lighter clearances this January, will guide their decisions in the near future.

Stocking Less Merchandise

That is as true for stores such as Saks (SKS) to grocer SuperValu (SVU), the parent of Albertsons and Jewel, which said this week it would reduce the items in its stores by as much as 25%. For its part, Saks plans to stock less merchandise and have 20% to 25% of what's left be items that can't be found anywhere else, said CEO Stephen Sadove.

The retail conference opened with a forecast that a tougher environment during the next decade will force retailers to change what they sell and how. And every successive speaker reinforced the consensus: Customers are less loyal, more informed and more prone to have done most of their comparison shopping online before they get to the store. As a result, it's not necessary to have endless selection -- just the right items.

"I've never seen anybody go out of business because they had too little of something," said consultant Allen Questrom, a former CEO of J.C. Penney (JCP). "I've seen them go out of business because they had too much of the wrong thing."

Getting Into Shoppers' Psyches

The lesson drawn from this recession's "doomsday scenario" is that stores learned more about their customers -- what they wanted and how to reflect that faster on the shelves, said Howard Levine, CEO of Family Dollar Stores (FDO). He estimated Family Dollar likely spent more on learning what customers wanted over the last 18 months than the company did over the prior decade.

Sometimes, that will make retailers come across as Big Brother. "I know everything you've ever bought from me," said Kimberly Grabel, Saks' senior vice president of marketing and advertising. With the explosion of social media and online shopping, stores now have a lot more information to draw from, but they need to do more with it, she said.

Retailers are investing in merchandise planning solutions that use their sales data to plan buying and pricing product, said Denis Gingue, chief information officer of Charming Shoppes (CHRS).

Brisk Software Business


And at the retail conference trade show floor, companies offering software and services to analyze inventory were doing brisk business. Chris Allan, co-founder of Quantum Retail Technology, a maker of systems that help stores select which inventory to stock, said he's seen more interest in his products among retailers over the last year and a half.

"Somebody moved their cheese," said Mike Hrabe, Quantum's vice president of sales and marketing.

Allan noted that by aligning clothing on its racks with local demand, U.K. store New Look, a Quantum client, was able to hold back 30% to 40% of its product, rather than put it all on the sales floor at once. Full-price sales went up 2% and margins rose 4 percentage points, a significant amount for an "fast-fashion" store. It also made the store look cleaner and kept the merchandise looking newer, he said.

Less Is More

More choices all at once aren't necessarily better, said Stephen Dubner, the co-author of the Freakanomics book series. He recalled an experiment where grocery shoppers had the option of sampling 32 jam flavors one week, and six the next. More people stopped to sample the larger selection, but surprisingly more samplers bought the jam when there were fewer flavors to choose from, he said.

"People say they want more, but what they really want is what they want," Dubner told retailers. "And they need you to figure out what they want."

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