Retailers Facing Markdowns

Tighter credit and weaker spending have store owners struggling with inventories.

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As the credit crunch deepens, many retailers are overhauling operating costs and keeping a closer eye on inventories as they head into the holiday shopping season, market watchers say.

Typically, store owners are conservative when it comes to managing inventories in order to avoid getting stuck with unsold stock and forced markdowns at the end of the year.

Yet, as rising unemployment and shrinking wages cut into consumer spending this year, even retailers with well-managed inventories might be forced to offer discounts and other special promotions to keep customers coming through the doors, according to the National Retail Federation.

"In this economic environment, just about all retailers have become discount retailers," said Scott Krugman, a spokesman for the Washington-based trade group. "I think it's something we're starting to see and we’ll continue to see throughout the holiday season."

Krugman added that smaller retailers with less financial flexibility will likely be hit the hardest as credit conditions tighten and only the most stable companies with the highest credit ratings have access to operating capital.

Rising inventory costs have already driven some retailers out of business, said Jeff Lenard, a spokesman for the National Association of Convenience Stores.

"At the same time that banks tighten their lines of credit, the cost of inventory has doubled over the past two or three years," Lenard said. "That inside inventory can crush you if it's not moving and it's forced some retailers to have to exit the business,” he said.

On the upside, smaller retailers tend to have longer lead times and shouldn't have trouble keeping stores stocked during the holidays, Krugman said.

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Venuri Siriwardane

Venuri Siriwardane's work has appeared on Inc.com, and in the Newark, New Jersey Star-Ledger, USA Today, and The Philadelphia Inquirer, among other publications.

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