SNEWS View: We are in extraordinary times, but beware of decisions for short-term gain

There is no doubt we are in most extraordinary times. With the New Year have come more layoffs, continued belt-tightening, disappointing financial reports, and increasing challenges as companies struggle to maintain a balance of budgetary mindfulness and investment for the future.

Retailers across the board are running with lean inventories. As sales have slowed dramatically, inventories have often swelled in manufacturer warehouses. Unsold inventory, especially last year’s models, is not a healthy item to keep on a company’s books, so we understand that manufacturers must find creative ways to manage excess inventory levels. However, some ways are clearly better than others, and some just leave retailers shaking their heads in bewilderment.

Take, for example, a recent online notice posted in the Ocean State Job Lot website --
proclaiming:“

As part of an Old Town warehouse clean-out 1,517 kayaks and canoes are on their way to Job Lot stores. These include overstocks, discontinued models and blemished products, 42 models in total ranging in size from 11' to 18'6". 300 are "blems," boats with minor blemishes such as a decal in the wrong place (nothing that compromises their seaworthiness.) The balance is first quality.”

Job Lot operates 85 stores across New England, with stores right in the backyard of many outdoor specialty dealers that carry Old Town – Jersey Paddler, North Cove Outfitters, Kittery Trading Post to name but a few. Job Lot’s stated purpose, and the one that has made it a successful business, is to “sell brand name, first quality products at closeout prices.”

Naturally, getting Old Town boats in stock is wonderful for Job Lot. And cheap boats are wonderful for Job Lot customers. And, it certainly eliminates a problematic warehouse overstock position for Old Town. But that is a short-term gain. What of the long-term implications?

Suddenly, in New England, Old Town has likely created a market where their boats are simply a commodity to be purchased by the consumer at the best price possible. For the specialty retailer near a Job Lot store, it is unlikely that a customer will notice the boats the specialty dealer carries are a newer model or simply a better quality boat. All the customer will likely notice is that the specialty dealer’s Old Town boats are significantly higher-priced than the ones he just saw at Job Lot.

A retailer we spoke with recently told us, “A long time ago, a well-respected member of this industry told me ‘When you can get something everywhere, it is no longer special, and I am a specialty retailer.’ Increased distribution may be a short term answer to a manufacturer’s success, but in the long run it will only force those of us – the ones who showcase their products, train our employees, and educate the buying public (who then go to the off-price merchants to buy the product) -- to find other manufacturers to take their place.”

That retailer went on to state, “When a manufacturer dumps merchandise to bottom-feeding retailers who list their products in newspaper fliers and on websites at “60-70 percent off” two things occur: First, that manufacturer really annoys those of us who bought into their preseason terms. Second, that manufacturer is creating a market where essentially the discounted prices on the same product we are carrying make our own retail customers feel as if we are robbing them blind. And if we are doing it with this product, who’s to say all of our products are not priced too high?”

More than several retailers told us that, yes, manufacturers such as Old Town typically come to them first to offer the discounts before resorting to off-price retailers such as Job Lot, but usually open-to-buy dollars have already been used up buying the company’s products at full-priced preseason amounts. Short of cancelling the preseason orders and moving the dollars to a manufacturer with specialty price integrity, there’s often little a retailer can do except grumble.

Like the current economic situation though, there is no simple answer. No government bailout or stimulus package will solve the challenges that come from a combination of overproduction, overstocked warehouses, buying cycles moving earlier, production lead times getting longer, customer buying habit shifts, and retailers stocking less.

Retailers are customers of the manufacturers. They are under no obligation to buy anything. Just as a retailer’s customers are under no obligation to buy anything from the retailer either. If manufacturers run out of stock, they risk losing or frustrating their customer – the retailer. But, on the other hand, if they have too much stock, they risk angering a customer by then having to sell their product at a much lower price to a discount retailer. Oh, we’ve all heard the arguments – “But that retailer serves an entirely different set of customers.” Bull. Increasingly, and rightfully so, customers are shopping for the best price – online, specialty, discount, or chain. Think about how you buy. Was your recent camera, computer or electronics purchase made at a specialty retailer, or at a store like Costco…or online at Amazon. Price is always going to be part of the buying / selling equation. Notice we said part, not all. A good specialty retailer can always sell at a premium price when it offers high service and education, as long as the products they are selling are not being offloaded weeks later at a discount retailer by a manufacturer thinking in the short-term.

So, what’s the solution? It’s not an easy answer, but we’d love to hear your thoughts via the SNEWS Chat, below. Perhaps together we can arrive at a solution…or at least we can better understand the problem to be able to minimize a negative impact. Together and thinking of long-term gains for us all, we will prosper. Thinking only of individual short-term gains we will collectively suffer. --Michael Hodgson