Managed Scarcity - Watching Saks

Copyright (c) 2012 Ted Hurlbut

I'm keeping my eye on Saks.

For a year now, independent retailers of all shapes and sizes have been struggling with weak sales, deep markdowns and the question of how they'll ever be able to get customers to ever pay full price again. At the same time, they've drawn down inventories, to align stock levels with sales, reduce markdown exposure and maintain positive cash flow. Throughout, as inventories have been reduced, there's also been the hope that lower stock levels would begin to put a floor beneath prices.

As we've gone through the first few months of the fall selling season, there's been a close watch on retail prices. With unemployment at the highest levels in a generation, and consumer confidence wavering between cautious and pessimistic, there's been the concern that consumers would demand deep discounts before they would open up their wallets, irregardless of stock levels. Would prices hold? The early indications have been mixed, at best, especially on lower and moderately priced goods.

This morning in the New York Times, there was an important piece on luxury retailers such as Saks, Neiman Marcus and Nordstrom, and their efforts to sustain full retails through a conscious strategy of limiting quantity. There were several quotes that stood out.

Burton M. Tansky, president and chief executive of the Neiman Marcus Group, told the Times, "We've told our customers that the availability is less than they're used to seeing in the stores. We've suggested that it would be prudent to shop early."

"We're out of stock on a number of hot items people want," Stephen I. Sadove, chairman and chief executive of Saks said. "Our associates are telling people, 'If you want this item in your size, we only have three of them, we only have two.' "

This is significant for many independent retailers. While not Saks, Nieman or Nordstrom, these independent retailers do offer better specialty merchandise in their categories, merchandise that is highly discretionary and that has been under the same pricing pressures as other discretionary spending.

The success of these luxury retailers in altering the pricing and demand equation by limiting supply is worth keeping an eye on. Independent retailers need to be in these stores, observing assortments, merchandise displays and stock levels as we go through the next six weeks. They need to engage store associates to see how things are going. They need to see if they hear more comments like this one, from the Times story, regarding a woman's boot, priced at $1995:

"All gone, except for this," said Nick Passerelli, a Saks employee, dangling a size 11 boot from his fingers.

And then there was this final quote at the end of the story, something for all independent retailers to think about:

"What's luxury retailing about?" Mr. Sadove said. "It is about a scarcity of supply."

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