Who wants to be long?
For stores, the holiday season may already be over
By ANNE D’INNOCENZIO, AP Retail Writer
Thu Nov 27, 4:33 am ET
Major department stores and mall-based chains have cut prices up to 70 percent to move out mounds of excess inventory stuck in the pipeline since the financial crisis hit in September and people snapped their wallets shut.
Big moves of merchandise happen every year – but usually after Christmas. This year stores are desperate to shed inventory even before Thanksgiving.
It wasn’t supposed to be this bad. Stores, which typically place orders about four to seven months in advance, had cautiously planned their holiday inventories about 15 percent below last year’s levels.
But because of the free fall in consumer spending, stores are now stuck with about 15 percent to 20 percent excess holiday inventory, estimated Burt P. Flickinger, managing director of Strategic Resource Group.
How bad will the season ultimately be for stores? Mark Vitner, senior economist at Wachovia Corp., expects total retail sales to fall 0.5 percent for November and December. That would be the first decline in holiday sales since 1982.
The problem for a retailer is that most of their capital is tied up in merchandise, most of which is ordered up to 6 months or even a year ahead of time. Like everyone else they buy on credit and count on income from sales to pay off the loans when they come due.
This year, just like hedge funds, they are liquidating assets (inventory) in anticipation of margin calls and redemptions.