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Zombie Stores and Zombie Departments

Death Spiral Economic conditions have caused many retailers (garden centers included) to reduce inventories. Whether they decided to reduce redundancy and confusion in their merchandise mix, or were simply over-buying and had too much inventory at the wrong time in the wrong amount, the net effect is less inventory on hand. Some retailers handle adjustment to reduced inventory better than others. This falls in line with my previous post on the Horticulture Zombieconomy, but takes it straight to the sales floor where the customer is involved directly.  Ted Hulbut suggests that retailers who aggressively reduce inventory may become Zombie Stores and Zombie Departments, but do they have an alternative?

What will happen when retailers adjust inventory to reduce unproductive items and to match customer traffic and sales levels? How will they adjust? This is an issue I have worked with clients on for several years. The first thing a retailer must do in any instance is look at the hard economic reality of their situation. If their sales level cannot meet the break even sales level based on their cost structure then adjustments must be made. Many retailers are on a collision course and must increase margins (still possible for many even in a tough economy), and realign their operating and wage expenses to lower their break even sales requirement to meet current demand. If they can’t generate the required sales at a lower break even point they must close up shop. It really is as simple as that.

Lowered inventory can be the beginning of a death spiral. When the merchandise assortment and inventory level becomes too low to keep the consumers interested and earn their purchases it is the beginning of the end. Sales declines lead to yet lower inventory levels until customers stop coming back to buy either due to out-of-stocks or the lack of anything new and exciting – the Zombie Store. Some departments or sales categories may drop below a viable sales level and become the Zombie Department or be eliminated from the store.

Even the best merchandisers can only go so far in stretching and spacing inventory. Generally speaking most people crowd too much inventory in too little space because they have too much of it to begin with. Reformatting the store with more shopper and cart friendly traffic patterns and aisle widths is a good beginning and can actually improve customer perceptions. Changing the location of categories can create diversion and interest if the change makes sense and is not continual. Shoppers are frustrated when things they buy regularly move around nearly every time they are in a store, or are located in illogical places. Empty shelves and benches, out-of-stocks, gaps in sizes and color selection, and remnants of discontinued items send a very clear message that something is amiss beginning shopper discomfort and their desire to try shopping somewhere else.

Keep buying while reducing total inventory levels. Spicing up the merchandise selection with new items or even new categories can be at least part of the answer to stimulating customer interest and purchases while reducing the total inventory level. It seems counter-intuitive to keep buying while trying to reduce inventory, but when the alternative is not tolerable to the consumer is there really any choice? Be careful that what you do add is consistent with your store image and customer expectations. Don’t experiment in tangents that will confuse your customer. But do Über-Differentiate. For being noticeably different is what really matters in a saturated hyper-competitive market and especially in a down economy when you can count on your competition to be stingy and misstep while reducing their inventory.

If you are not reducing inventory levels what are you doing to maintain profitability? If you are reducing inventory what are you doing to stay consumer-relevant and avoid becoming the Zombie Store, or Zombie Department?

6 Responses

  1. This article in particular comes on a day when we are talking about just these issues. Have we cut back so much in looking at numbers that we have in turn chased away business due to lack of fresh ideas and product? Where is that “line” that will continue to show profitablility, allow new spending (if not just spending at all) without decreasing our profit or flooding our new inventory with sporadic purchases, and yet, let’s not look “naked” or zombie like with our old inventory spread out to look interesting but not enticing. Having just come through the hail damage, this adds to the tenative selection and spending of new material on top of the economic situation. So wondering if we are doing the right thing by wondering before acting is an encouragement and so we forge ahead to the carefully planned fall season.

  2. It is particularly difficult during the slower traffic periods of the year, but you also cannot have inventory in excess of your traffic. It’s difficult to go from 0-60 in creating a sustainable level of summer traffic, and particularly so for very small garden centers. In summers of moderate weather and adequate rainfall you get the feeling you could do more, but a blazing scorcher will damper the feeling. The best course is to strengthen your strong parts of the year then work on having relevant and exciting summer offerings – mostly FRESH COLOR in moderate amounts to keep customers excited. Leftovers from Spring won’t do it. Too many green plants won’t do it. It takes fresh color in big splashes, but from where you are now, who would see it and buy it? This is another reason why building the email list is critical – so you can affordably market the fresh color. Prepare for the best fall ever. It starts in only about six weeks now.

  3. Thank you, Sid. I have forwarded this on to all our managers. This is exactly what I have been trying to communicate to our staff for the past couple of months. Very well put.

    Inventory control is always difficult. Inventory control during times of sagging sales is even more so. But with careful thought we can reduce inventory while minimizing disappointments and still keep the customer excited about our offering.

  4. You’re right John. When I’m in garden centers this time of year the customer carts at the register are very colorful and exciting to the customer. Even when they come in because of clearance sales they also buy the fresh color at full price and margin. The trick is to have the right amount of nice fresh color, and not much leftover from spring, having taken interim markdowns to clear away excesses before it is stale and while there is enough customer traffic to absorb it. Thanks for commenting.

  5. We are a small greenhouse garden center that has been open all year long for 30 years but 3 years ago decided to close in mid-July until mid-August. We let someone else grow our garden mums but we still grow our own fall pansies but we take a vacation now in the summer. A year ago we gave up growing poinsettias for retail and wholesale after 29 years of growing them and it was the best fall personally for me. No more 7 days a week watering and stressing over the poinsettias. I was much more energized this past spring and we had a great spring. We played up that we would close in the summer and late in the fall and why we were doing this to our customers. I wanted more family time. Our customers come and ask all the time where we are going for vacation and what do we do in the locked up times. I guess this is one way we differentiate us from others.

  6. If your cost structure allows you to earn enough margin dollars to cover your profit, operating expenses and wages in that amount of time and you have managed to live within your means you have a lifestyle that many are envious of. This is a great way to go especially where you do not have adequate traffic to maintain at least a break-even sales level during the slower months. Why kill yourself and still bleed? Thank you for sharing how this concept works for you. Unfortunately, a lot of others really need the margin dollars they can earn in the slower months even if they are not enough to break even and they still lose money. Many owners worry too much what their customers will think when they are closed. Unfortunately too many customers won’t even discover that a garden center is closed during the slower months because they’d never go there to find out. It is often a valid point that the staff needs employment during the months the company would be closed. However, often even the staff would rather be closed, or the company can make enough money when open to pay them to work behind the scenes when closed.

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