Inventory Level at Retailers

I recently visited local Fry’s Electronics to purchase some CD-R media. As with everyone else, I am cutting down on spending due the economy and only bought what I came for, besides a Coca Cola that quenched my thirst. I observed something a bit different. There were room in the aisles in the store. Typically, they fill the aisles with sales item or big ticket item storage, seasonal items like air conditioner or bottled water. However, the aisles were clear. Not only that, items like CD-R and magazine racks were very thins, not only in numbers but number of choices. This was very curious since I have never seen Fry’s Electronics known to reduce their inventory this much.

When I also went to local Target, the story was similar, although not to the level as Fry’s Electronics. I haven’t been shopping much lately but I would assume it’s same everywhere.

So, why is this? Well, inventory level is one of quickest fixes of financial statement bottom line. So, the retailers, not so confident on consumer spending, decided to reduce the selection and overall volume of inventory. I can understand why they traditional brick and mortar stores would do this since they fixed cost is much higher than online stores. So, keeping the inventory would keep the overall operating expense down. However, this can backfire on them. Consumers who are used to the convenience of instant purchase of brick and mortar now may think twice about shopping locally if the selection is not available or out of stock. They will more likely wait a few days for the item to save money online or they may not have a choice if item is not available locally.

This is a delicate balance the brick and mortar companies must maintain to survive through the tough times but continue with the momentum when the economy improves. As for the online retailers, this may give them an advantage against the local stores since they have lower cost advantage of stocking more items than local stores. They can leverage by stocking more items and use that to compete against brick and mortar. Once they capture the customers now, they will more likely to purchase online from them even if the economy improves.