Rationalised and optimal

LinkedIn +

[asset_ref id=”111″]The current recession has seen massive destocking by retailers – it this the new norm or will the shelves fill up again come the upturn?

Manufacturing output in the first quarter of 2009 may have fallen by 5.5 per cent but the latest figures from the Office of National Statistics also suggest that the monthly fall between February and March was only 0.1per cent – the lowest in consecutive months for more than a year, implying that those long-awaited “green shoots” could soon be appearing.

Much of the decline in output in recent months can be attributed to destocking. Richard Lim, analyst with the British Retail Consortium, suggests that retailers have reduced inventory levels by ten to 15 per cent. The numbers no doubt vary significantly between sectors and also disguise many of the more subtle changes in ranging brought about by the recession. Overall food sales have generally held up well – after all, we all still have to eat, despite the downturn. Mainstream food retailers, however, have seen a shift both to value lines and premium ready-meals as consumers both cut costs and compensate for not “eating out” by opting for an “eat-in” treat.

In non-food, those overloaded display racks and crowded shelves have, of necessity, been slimmed down with streamlined collections: instead of 20 different skirts or blouses the shopper may now have to choose from just a dozen; instead of 12 different sofas there may now just be eight or nine. This is not a new trend brought about by the recession but simply an escalation of one started some years ago when department stores, such as House of Fraser, began to “optimise” their assortments to maximise profits rather than sales.

Over the past few years “optimise” has been one of supply chain IT’s favourite weasel words. We have had price optimisation, promotions optimisation, space optimisation, markdown optimisation, transport optimisation, demand chain optimisation and very many more. “Optimisation” per se does, however, remain high on the agenda. Some 90 per cent of the 51 leading retailers questioned in a survey conducted for the BRC and SAP earlier this year answered “yes” to the question: Do you plan to optimise inventory levels in the supply chain to better manage costs?

It is the sort of question to which one might expect cash-strapped retailers to respond to positively, but it also reflects that despite the “optimisation” hype of the past few years most retailers accept that they still have a long way to go to achieve optimum efficiency. In the boom times it was all too easy to carry a little excess stock, deliver to stores two or three times a day, tolerate a few loss-making promotions, or markdown rather more merchandise than was absolutely necessary: the profits were still climbing and the punters were still spending. Today it is different. Taking cost out of the supply chain by more efficient vehicle routeing or assortment planning is a very real necessity. Buying departments, supply chain operations and demand forecasters have to work more closely to create the sort of “seamless” enterprises that theorists are fond of describing.

Recent consumer surveys suggest shoppers will take a very long time to go back to their pre-recession profligacy. A survey from the IGD, published last month, maintains that 75 per cent of those questioned expect to stick with their new thrifty grocery shopping habits when the economy recovers.

Some forecasters may already be predicting that consumer memories are short and we shall all be racking up credit card debts again within a few years – but shall we? Those over-inflated house prices and the lifestyles that 120 per cent mortgages financed, today seem a very long way It may no longer be possible to offer those 20 different skirts or 40 sorts of coffee that currently extend along the supermarket shelves.off. The world is also changing: not just because of concerns over climate or the scurrilous machinations of our MPs, but because the supply chain is global and the balance between demand and supply has never been more complex.

Demand from increasingly affluent shoppers in India, Brazil, China or wherever for finite supplies will inevitably stretch both availability and price. It may simply no longer be possible to offer those 20 different skirts or 40 sorts of coffee that currently extend along the supermarket shelves.

Consumers still want choice and “customised” products personalised to one’s individual taste – all those permutations of car trims and colours, for example – have long been seen as the ultimate growth area for the future. Combine build-to-order with internet shopping and simplified in-store assortments and not only do you need fewer deliveries to store, but the destocking that has been driving much of that decline in output could continue for some time to come – green shoots notwithstanding.

Penelope Ody is a regular columnist for SCS and is a retail market specialist.

Share this story: