Stores Move Toward Smaller Inventories

Home Depot has announced it will be moving towards keeping less physical inventory in their stores. The home improvement outlet is targeting a 15% increase in sales by 2018, but wants to bring down inventory in the process. This change comes among a trend of retailers moving to reduce the amount of inventory kept in-store. Wal-Mart added more space between its shelves to allow customers to browse more easily and Target moved larger items like furniture to centralized distribution centers.

Less physical inventory has a host of potential benefits, mainly for retailers themselves. Shoppers can be in and out of stores more quickly, which could increase daily revenues by getting more shoppers in and out of stores (and could reduce wait times at registers). This change also keeps items within reach at eye level. More importantly, holding inventory requires more space, upkeep, and management. Those savings can free up capital for investment elsewhere. It can also mean lower prices, which is a benefit for consumers; prices for labor, space, upkeep and management will decrease, these costs would traditionally be passed down to consumers.

However, smaller inventories do mean there are fewer options for consumers and longer wait times as items travel from distribution centers. Retailers might not all offer free shipping to consumers for items not in stores, which could be an additional cost. Also, consumers could purchase some items on Amazon or other established online retailers, rather than through retailers themselves.

Maintaining low inventory levels is a common logistics objective for companies, but too drastic of a change could dissuade shoppers from ever walking through the doors and can raise consumer concern about whether a store is in risk of closing. Companies will continue to search for a balance in which they have just enough stock to meet demand, but not so much that they are wasting valuable space and other assets.

This reduction also coincides with a shift in profits to online services for many companies. Retailers want to expand and cater to online shoppers while reducing the burden of their physical stores and compete with e-commerce brands. Amazon, America’s largest online retailer, boasts record profits and continues taking market share away from traditional brick and mortar stores. More and more shoppers are going to traditional brick and mortar stores to look at products, only to take out their smartphones and find it online for cheaper.

This isn’t to say this is the end of in-person shopping. Three classic brick-and-mortar companies, Burlington Stores, Ross Stores, and The TJX Companies – most well known for operating TJ Maxx and Marshalls, reported positive figures in what has been a hard first half of the year for the retail industry. Amazon even opened its very first physical bookstore last November.

Read more here: “Retailers Rethink Inventory Strategies” (Paul Ziobro, WSJ)

 

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