Too Much Supply Chasing Too Little Demand

NYT today, After a Season of Discounting, Stores Sweeten Discounts

Retailers have no choice but to find creative ways to clear their store shelves, because they have to make room for spring merchandise. And persuading consumers to take their goods off their hands is increasingly their only option, since other avenues, like discount Web sites, already have full inventories of their own.

After all, retailers had one of the worst holiday shopping seasons in decades, with sales falling by double digits in nearly all categories, including apparel, luxury goods, furniture and electronics and appliances, according to SpendingPulse, a report by MasterCard Advisors that estimates retail sales from all forms of payment, including checks and cash.

I'm reminded of the desperation scene in a hospital drama where the crew works on a crashing patient (my favorite take on that scene is the Levi's Tainted Love commercial - YouTube video here).

How will the various actors in this drama react to falling demand? What will desperation come to look like? The scenes at the stores yesterday (I had to go out with my son to spend some of his holiday cash) were telling - lots of folks out buying, from the mall to the Sam's Club to the Outlet Mall. Or at least they were out shopping.

More from the NY Times article.

“Many of the senior executives we’ve talked to are worried about how we retrain the customer to pay full price,” said Joseph Feldman, a retailing analyst with Telsey Advisory Group, an equity research and consulting company.

Indeed, on Friday, Phyllis Gagliardi, 56, of Trumbull, Conn., was unimpressed with the $29.99 price tag on a cashmere sweater at the Ann Taylor Loft in Times Square. “They should be lower than this,” she said.

Matthew F. Katz, a managing director in the retail practice of AlixPartners, a restructuring firm, estimated that it would be “several quarters, at best, before consumers go back to a more normal shopping psyche.”

Consumers are becoming so accustomed to stunning discounts that even liquidators are rethinking their pricing strategy. Typically, retailers wait about eight weeks before putting merchandise on sale, but analysts said that given the economy, this spring they may wait only about two or three weeks. “There is no more patience,” Mr. Cohen of the NPD Group said. “The rules have changed.”

Yes indeed, the rules have changed. It will take time, but this may be what a restructuring looks like. With less money to spend, consumers become more selective on how they spend it. The economy, revved up to meet a consumer demand that seemed to never stop growing will have to adjust and retool to meet a shrinking demand.