 | Retailers Running Lean and Mean |
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| Posted Under: Data Watch • Retail Sales |
Something unprecedented is happening in the retail sector. As the chart above shows, over the last three years the "real" (inflation-adjusted) inventory-to-sales ratio in the retail sector has plummeted to a record low (shaded areas in the chart are recessions). This could mean either one of two things: retailers have been consistently betting on another consumer recession, or we are witnessing supply-chain management on steroids, a sign of the ongoing technological revolution.
In the past two years, the consumer has surprised the conventional wisdom. Any new slowdown doesn't look likely. Auto sales are up 11% versus a year ago and the early signs suggest a robust Christmas-shopping season. So if retailers have been waiting for a slowdown, eventually they will be forced to add to in-store shelves.
It's entirely plausible, however, that we are witnessing another leg in the way technology transforms the retail experience. The Web lets shoppers search the globe for the things they want. If one store doesn't have the item I want in, say, the color blue, some other store will. And Amazon.com or other online malls show multiple sellers in a search. As a result, each seller knows it doesn't have to stock every color or every size to quench the desires of every customer. Seller competition is often about what version, color, or size will be the most popular, with some sellers deciding to become niche players in off-color or off-normal-size items.
Another possibility is that what used to be held in retail inventories is now being held at the wholesale level, with a logistics or shipping company keeping it in a warehouse. The inventory-to-sales ratio among wholesalers has bounced back from its post-recession low which does suggest some shift in the share of inventories, away from retailers toward the wholesale level.
The bottom line is that measured retail inventories are at amazingly low levels. For a few quarters now, this has been a drag on growth. It is hard to imagine a further decline. As a result, it appears that this drag will diminish and measured GDP will tick higher in the quarters ahead.
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