goodbye, bargains

So, it has come to this. Supply chain efficiency has hit home. My home.

I first learned of this sad state of affairs from my wife, who relayed an account of her latest shopping expedition to me over dinner recently. She had just completed her annual and exhaustive post-holiday sweep of the local malls, wholesale outlets and other retail venues. You see, my wife has prided herself for years on taking a big bite out of the next year's Christmas shopping each January and February. She scours the stores for quality items at deep discounts and squirrels away the bargains for 11 months until the next Yuletide. By her estimate, she's been able to cut our annual Christmas shopping bill in half for many, many years.

But now, her time-tested strategy for Christmas shopping on the cheap is in peril. Her most recent retail expedition netted her very little for her trouble. She found the shelves strangely bereft of sweaters decorated with snowmen and Santas at 70 percent off. Missing were the displays of leftover wrapping paper and holiday greeting cards at 50 percent off. There was nary a bin of red and green foil-wrapped holiday candy to be found. Nothing. Well, almost nothing. Certainly a lot less than in previous years.

But what's bad for the Christmas budget here at the Mac Donald residence is a very good sign for retailers and consumer goods manufacturers. After years of struggling to improve inventory management and material flow into retail stores with new technologies and management practices, it appears they've finally succeeded. The reason there wasn't an awful lot of merchandise left over after the holiday shopping blitz was that the amount of goods stocked by the stores pretty evenly matched what consumers wanted to buy.

It probably shouldn't come as much of a surprise to students of the supply chain. Yet many of us are still taken aback by this real-world manifestation of the theoretical improvements we've been observing (and reporting on) over the years. In our defense, however, it's been nothing if not a gradual process—a bit like watching your kids grow. It's slow. It's incremental. And from a day-to-day perspective, it's almost imperceptible.

It's also no accident. Retailers are focusing on supply chain efficiency in order to stay competitive, according to new research by the National Retail Federation (NRF) Foundation and BearingPoint Inc. unveiled at the NRF Annual Convention & Expo in New York in mid- January. The study, "Retail Horizons: Benchmarks for 2004, Forecasts for 2005," revealed that the majority of retailers cited supply chain optimization as a priority initiative. It also indicated that retailers are collecting shopping data and sharing it with their suppliers, factories and DCs. The result is a much closer alignment of on-hand inventory and customer demand, which means there's less stuff that has to be sold later at deep markdowns and less risk that an item will be out of stock when the customer shows up to buy.

The good news doesn't end there. Despite gloomy early sales forecasts, the retail industry appears to have hit another home run this Christmas. NRF says December retail sales reported by what it refers to as "GAF" stores (that is, stores selling general merchandise, clothing and accessories, furniture and home furnishings, electronics and appliances, sporting goods, hobby supplies, books and music) rose a whopping 6.4 percent over the previous year. Combined, November and December brought holiday sales growth to 5.7 percent, the strongest growth since 1999. That's both higher than last year's 5.1-percent increase and well above the 4.5-percent increase NRF had been predicting since September. "Even after all of the hand-wringing by retail analysts, the holiday season ended on [a] strong footing," said NRF Chief Economist Rosalind Wells.

A strong footing, indeed, though decidedly weak where bargains were concerned. That's good news for retailers; bad news for Mrs.Mac Donald.