Which is the greater risk for the second half of 2010 – being overstocked or understocked? Vote and view live poll results
	73% say suppliers should not turn their shipping over to Walmart. See full results below. See full results below.

To stock or not to stock – that is the question.

Well, to be more precise, how heavily to stock is the question. The Economist had an article last week, from which I stole the title, noting that many retailers, while pleased at recent sales increases and indicators of consumer confidence, are still wary of increasing their inventory levels. With longer-term economic trends still uncertain, the retailers are comparing the downside risks of over-stocking and under-stocking:

In some respects, it was easier for retailers to plan during the recession, provided they had accepted the gruesome reality, since plunging sales were all but assured. Now, there is great uncertainty about what consumers will do. If the recent uptick in sales proves short-lived, retailers who extrapolate from the latest numbers will spend a miserable holiday season trying to offload unwanted stock at crippling discounts. Conversely, excessive pessimism could lead to empty shelves, disappointed customers and red faces in the executive suite.

Not surprisingly, many retailers are trying to offload at least some of those risks to their suppliers:

Retailers have also tried to shorten the ordering cycle, so that manufacturers end up carrying more of the risk of managing stock. Many are trying to replace the standard four annual “seasonal” orders with as many as 16 orders a year ... Five years ago only Zara, a Spanish clothes retailer, followed such a strategy, but firms such as J.C. Penney, Saks and Macy’s have since adopted it too.

Normally, I’d be more worried about overstocks, because the cost of excessive inventory can be so severe. But retailers have got to be hungry for some growth and some profits by now, and they will be sacrificing both if they are caught with a lot of bare shelves this fall and through the holidays.

Let’s have a very simple exit question this week: Which is the greater risk for the second half of 2010 – being overstocked or understocked? Please give us your comments.

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The Pricing Game

Sticking with The Economist, they also had an interesting article on how consumers react to different pricing scenarios, based on a study of an experiment by Britain’s Office of Fair Trading and University College London. The test asked students to choose pricing offers from different retailers, with the pricing phrased in terms of various ‘frames’ – different forms of sale pricing. These included “’drip pricing’, where only part of the price is revealed at first and extra charges are levied as the sale progresses (think of buying an airline ticket online); ‘sales’, where the price is contrasted with a higher price (was $2, now $1); ‘complex pricing’, such as three-for-two offers, where the unit price has to be worked out; ‘baiting’, where a cheap deal is advertised but restricted to a few lucky shoppers; and ‘time-limited offers’ that are available for a short period.”

The test found that the shoppers tended to over-search when the pricing was offered on a straight per-unit basis, and to under-search (jump at the first deal they found) when special pricing was offered.

The deeper causes of these errors vary. In the drip-pricing and baiting frames it seems that shoppers, having resolved to buy a good, feel as if they already own it. To abandon the sale would feel like a loss. With sales and time-limited offers, shoppers believe they will miss out if they do not buy at once, even though prices are unlikely to be any keener than in the other shop.

Read the article – I think you will find it of interest, especially for those of you who are involved in making trade promo deals involving similar pricing scenarios.

The biggest objection I have is that the test was of college students. My personal experience with this group is that they are not necessarily the savviest shoppers around. It would be interesting to see the experiment replicated using 35-year-old women with two kids and an upside-down mortgage.

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Previous Poll Results

In our last Outlook, we discussed Walmart’s recent initiative to take over shipping from their suppliers. We asked, “Should suppliers turn over their shipping to Walmart?” The answer was a resounding ‘No’.

• 27% Yes
• 73% No
  

The comments were of particular interest. Several gave very good business arguments on both sides of the question:

• “It really depends on whether or not there are legitimate cost savings. Suppliers should be absolutely willing to share cost information and, this in turn, will help drive the best decision. Let the #'s drive the decision and don't ask Shippers to cut their costs more than what the savings would be.”
• “Disproportionally supporting Walmart over other customers essentially encourages other retailers to consolidate to increase economies of scale and reduce costs to remain competitive. Retail consolidation will increase the pressure put on suppliers to keep prices low, thus squeezing supplier margins.”
• “It doesn't make sense under any circumstances to turn over this important competency to Wal-Mart.”
• “Walmart will prioritize their freight and will use yours as filler only (lower priority).”
  

But what really struck me was the strong hostility toward Walmart among their supplier community:

• “Control, control, control and beat up for price, typical Walmart.”
• “To the detriment of us all - we will be hastening a monopoly. Does Walmart have jobs for us all?”
• “Walmart is helping to kill the idea of the American Dream.”
• “Walmart shouldn't be "allowed" to become as big as they are, much less any bigger. They're retail thugs and I don't feel they have risen to this height honorably. I'd rather see more independent business owners who might have to charge higher prices than one massive conglomerate who strong-arms the world to be able to offer the lowest prices.”
• “They already damage US manufacturers with their push for lower costs, going overseas and damaging the capacity of US manufacturers; now they'll do something similar to shipping by demanding lower costs forcing the remaining customers to pick these up.”
• “Walmart is not a force for good and should not be helped.”
  

There has been much written recently about how Walmart has improved its public image, but these comments would indicate that they still have a way to go.

Follow-Ups

Malls and Lifestyle Centers
We discussed the future of regional shopping malls a few weeks ago, and recently we came across this item from the Washington Post on the growing popularity of lifestyle centers, but with a cautionary note that there are questions about whether they are a lasting trend.

Lifestyle centers were among the few retail property types to experience an increase in leasing activity in the first quarter, according to data compiled by CoStar Group, a real estate research firm. But despite the success in Reston, and the legions of copycats that have sprouted across the country, a number of developers and brokers said they weren't convinced that the developments constituted a safe bet as the retail sector begins emerging from the recession.

Gary D. Rappaport, president and chief executive of McLean-based Rappaport Cos., a developer and manager of retail centers from Fredericksburg to Baltimore, said his concern about the concept involves centers that are too small to be a destination.

"These lifestyle centers, if they're not large enough, are very hard over time to be successful," Rappaport said. That hasn't stopped people from continuing to build them, though. "Many communities in this country were requiring new centers to look like town centers and forced such upon builders," Rappaport said. "And many of them were mistakes."

Media
Will the last newspaper be printed on June 8, 2015? Probably not, but this article quotes people in the newspaper business who are looking at an effective end to the print version of the papers in about five years.

Madi Solomon, director of global content standards for (Financial Times’) parent group Pearson, told paidContent that the newspaper does “see the end of print,” and that, while they may never completely stop printing, they will certainly pull back. “In fact, they’re already pulling back,” she said, adding that the paper sees a five-year trajectory for having “exited print in substantial part.” During those five years, Pearson will be scrambling to enact a large-scale switch from print to digital.

Private Label
A group of professors at Arizona State did a study, published in an economics journal, showing that private label products reduce the prices consumers pay. Really – you wouldn’t kid us would you?

The research shows that even if a generic or private label brand isn’t a top seller, it serves as an incentive for lower prices overall in that category. “Consumers benefit because the whole idea is for retailers to provide a value option to customers. Also, when grocery stores offer these competitive store-brand products, it forces the brand-name companies to lower the wholesale prices they charge the grocery stores. Part of the savings is then passed on to the customers who buy the brand names,” Richards said in a statement.

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Quickly Noted

Africa’s Local Champions Begin to Spread Out
Atul Shah is Africa’s Sam Walton – he has built his chain of Nakumatt stores across three countries now, expanding from his native Kenya, with twenty-four stores now, and revenues of $350 million. As Africa develops a middle class, retailers and suppliers are growing to serve them, in some cases, competing strongly with international powerhouses.
Wall Street Journal, 26 May 2010

The New Touch-Face of Vending Machines
When was the last time you saw a cigarette vending machine? Unless you are at least into middle age, you may never have seen one because of age restrictions on purchases of cigarettes. In Japan, however, the vending machines analyze your facial features to determine if you have enough wrinkles to buy. In Abu Dhabi you can, if so inclined, buy gold bars from vending machines at $1000 or so an ounce. The US is way behind in vending machine technology, but the incentive is there to catch up – vending machines cost less than employees and can produce 10x or more sales per square foot than the norm for retail stores.
New York Times, 26 May 2010

Adidas Is Considering the Launch of a Sports Drink
In an interesting partnership, Adidas and Coca-Cola have jointly launched a sports drink, made by Coke and marketed under the Adidas name. The product is currently being tested in Japan: “’First, we want to find out how the consumers will react to a beverage with the brand-name Adidas, and which associations it invokes.’ At the end of the trial period, Adidas will decide whether to launch the drink worldwide.”
BeverageManager, 19 May 2010

Coach Sues City of Chicago over Counterfeit Bags
Coach says that the City of Chicago is allowing the sale of knock-offs at the city-owned Maxwell Street Market. Coach said they bought bags from two vendors last year, working with police, and found more than 300 bags at the market, but nonetheless the city has continued to allow the sales at the market. “Coach is seeking $2 million of damages per violation, punitive damages, an injunction halting the improper sales and other remedies.”
Reuters, 21 May 2010

Kohl’s Casts Its Eyes Northward
With expansion opportunities slowing during the recession, Kohl’s and other retailers began looking at other opportunities. J. Crew, Target, and Victoria’s Secret are also mentioned as seeking out northern climes. Although there are problems associated with entering any new country, even our closest neighbor, there also are benefits – Canada, for example, has only 14 square feet of retail space per capita, compared to 23 in the US.
The Globe & Mail (Toronto), 27 May 2010

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