With decades in the business, our analysts have seen countless cycles of retail growth, followed by contractions. This has allowed us to identify both winning and losing strategies for managing slowdowns.
On occasion, these drop-offs can come fast and unexpectedly, like after the stock market crash of 2008, and the shutdowns that came at the start of the COVID pandemic. But usually, slowdowns are a normal part of the sales cycle, coming after a period of sustained gains.
You can see slowdowns coming in the data, and feel it in the stores. And there is no doubt that right now we are coming off of a very prolonged demand cycle of nearly 2 years. Inventory levels are building, and although our merchants are still posting gains they are getting smaller each month.
How you manage this deceleration will determine how quickly you can recover from it. So let’s look at some common mistakes that merchants make during slowdown cycles.
1) Not looking at their data often enough —If you are only reviewing your sales trends on a monthly basis you’re likely to miss the signs of a coming slowdown before you’re already in it. Get in the habit of reviewing your numbers week-by-week, and then putting them in context with your overall finances on a monthly basis.
2) Hesitating to markdown—Markdowns won’t keep the slowdown from happening, but they can help you incite demand and keep revenue coming in. We have noticed, however, that some merchants hesitate to markdown after sustained growth cycles, simply because they are out of the habit of taking discounts. Remember, markdowns are a useful tool. Careful, planned promotions can keep sales bubbling along and help you clear out older goods.
3) Not cancelling past due deliveries—As demand drops, you don’t want to get stuck with merchandise that you don’t have time to sell through. Communicate clearly with your vendors about you delivery windows and when you can no longer receive merchandise.
4) Not sure where their highest margin lies —It’s important to know which categories of merchandise are the most profitable as demand starts to wane. This allows you to focus on areas of your business that drive revenue and traffic.
5) Not sure how their margin drivers are affecting OTB— Having a clear picture of the revenue centers in your business is key to making strategic decisions on which categories to fund, and which to potentially trim or drop.
Of course, all of these topics are interrelated and should be part of the comprehensive inventory and financial plan. If you need help as we face this next slowing cycle, give us a call.
