12 SCS:RETAIL SUPPLY CHAINS
Coping with
the crunch
Oneofthe
biggest problems
for retailers,
especially as
we approach
Christmas, will
be trying to
estimate
demand. At this
time of year the
stores are
generally filling
with seasonal
lines at full
price. This year
many of these
products are
already offered
atadiscountin
an attempt to
boost sales.
The posters in the high street say it all: “half-price sale”,
“up to 70 per cent off”, “extra discount day”. As the “credit
crunch” continues to bite, discretionary spending
plummets and sales at discounters soar. How is the current
downturn hitting retail supply chains? PENELOPE ODY
Petrol prices may be on the way down and, according to
some commentators, food inflation may have “peaked”
but with house prices continuing to fall and consumers
worried about the safety of their savings, there is very little of
the “feel good factor” around. Add to that the current round of
burgeoning utility bills and the badly burned fingers of anyone
with investments in stocks and shares and it is hardly
surprising that the vast majority of shoppers are looking for
ways to economise.
Reports in recent months have highlighted the shift towards
grocery discounters and the less pricey supermarkets.
According to market analysts TNS, Aldi's sales were up by 20.8
per cent in the 12 weeks to 9th September, while Lidl saw an
11.1 per cent growth. Meanwhile, Asda and Morrisons
recorded growth rates of 9.2 per cent and 9.1 per cent
respectively in the same time period. In contrast Waitrose
reported falls of one per cent while Tesco posted its weakest
first half figures for eight years. Even Lib Dem leader Nick
Clegg was feeling the pinch – admitting in a newspaper
interview to, “gravitating away from Ocado towards
Sainsbury’s, just on price”.
Bellwether
But at least people still have to eat. When it comes to
discretionary spending sales are even harder to come by: John
Lewis’s department stores – generally regarded as the high
street’s bellwether – were down by eight per cent in
September, Marks & Spencer was down by slightly more than
six per cent and MFI is expected to shut 100 stores this month
to stay in business – unless it can negotiate a major delay in its
quarterly rent payments.
So – how will this consumer reluctance to part with cash
affect retail supply chains? One of the biggest problems for
retailers, especially as we approach Christmas, will be trying to
estimate demand. At this time of year the stores are generally
filling with seasonal lines at full price. This year many of these
products are already offered at a discount in an attempt to
boost sales. If these items still don’t sell, then there will be
major problems over the next few weeks as the already-
NOVEMBER 2008 SUPPLY CHAIN STANDARD
www.supplychainstandard.com
ordered Christmas merchandise continues to arrive and the
shops run out of shelves on which to stack it.
Sales of autumn fashions have already been badly hit with
Debenhams currently offering up to 70 per cent off its
seasonal clothing lines. Again, space is going to be a big issue
as the Christmas party frocks will soon be delivered and the
racks will still be full of autumn skirts and suits.
Will it be a boom time for anyone with a spare few square
metres of warehousing space to store the surplus? Possibly,
but much of this merchandise is time-sensitive and cannot be
left languishing in distribution centres as the supply chain
backs up. Some products will inevitably head towards the offprice
shopping malls – but more products than discount
shops seems likely. Unless orders can be cancelled at this late
stage and product assortments trimmed, then write-offs
rather than write-downs seem inevitable.
Freight costs
Orders would certainly appear to be being cut back: already
there have been reports of falling freight costs as Western
demand for Far Eastern consumer goods wanes. Danish
shipping bank – Danmarks Skibskredit – recently predicted a
ten per cent fall in freight costs in 2009, for example. A few
months ago commentators were expressing concern that
China’s industrial freeze during the Beijing Olympics would
lead to shortages in the West. Today many importers must be
rather relieved that those Chinese convoys have eased.
Seasonal merchandise aside, the downturn is already
transforming where we shop and what we buy. When it comes
to food, “value” is the name of the game. During the summer
there have been numerous reports of shoppers cutting back
on both organic and fresh produce as they look for ways to
economise. Organic products form only a small part of the
market, worth around £1bn, but TNS suggests an 18 per cent
fall so far this year, while specialist supplier Abel and Cole
admits to a “slowing” in the market. Many of the companies
involved in this sector are small and depend on “weekly box”
deliveries of products direct to consumers. A downturn here
may affect home delivery firms although with Christmas on its
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