Nonfood seasonal imports are usually a margin-dollar bounty for retailers in the fourth quarter. But the economic weakness of 2008, marked by bleak sales forecasts and already weak sales posted in the fall, has supermarkets, wholesalers and import experts gritting their teeth for a roller-coaster ride of seasonal sales this holiday season.
Once bought in, as supermarkets largely were since last February, there was little they could do to offload their commitments as forecasts of poor holiday sales rolled in, experts said. Early reports indicate that the season will be filled with deep markdowns.
“Retailers are saying Christmas [nonfood seasonal import] sales will be flat at best,” said Brian K. Smith, category manager, seasonal imports and candy, at Bi-Lo, Greenville, S.C. He was quick to add that Bi-Lo expects to “exceed that” because he kept his chain's approach “pretty basic … with a strong core and little fringe. We have some exciting new items this season to enhance our assortment.”
Even if other chains have approached the season similarly in order to be safe, the economic developments that hit this summer and fall are squeezing consumers and shortening their shopping lists down to household essentials.
“Going forward, there will be great caution on the part of buyers due to the great uncertainty of the U.S. and global economies,” said Larry Ishii, general manager, GM/HBC sales, Unified Grocers, Los Angeles. “Hopefully, we'll see the drop-off in oil prices reflected in ocean freight rates.”
Supermarkets' prospects for the Christmas season have also been roiled by the recent unprecedented sequence of financial events.
“Many new factors will impact the success of these anticipated seasonal sales and profits. For perhaps the first time in recent history, we now realize the impact that a weak U.S. economy has on the rest of the world,” said William H. Mansfield Jr., president and chief executive officer of VIP International, a Garland, Texas-based consultancy, and a veteran supermarket executive.
Still, retailers will have pockets of opportunities based on store locations, he suggested. “The real impact of Q4 seasonal success will be directly proportional to the unemployment in each retailer's backyard. Moving product from currently underperforming stores to those experiencing growth could help the ending gross margin dramatically,” Mansfield stated. “Markdowns will need to be administered much earlier in the seasonal calendar, based on each segment's success, rather than waiting until the end. A poor economy forces affected customers to buy products only when they can actually be used now, not next year. Managing daily POS data will be essential throughout the seasonal calendar to realize the best sell-through possible.”
Other tips Mansfield offered:
Given the home cooking resurgence, focus gift displays around cooking implements, cooking classes and bundled food products.
Given the product safety issues with imports, consider sourcing American seasonal products and bring back the “Made in the U.S.A.” sticker to differentiate.
To these, Ishii added:
If advertising is part of the seasonal plan, do not back off. Be more aggressive if possible.
Monitor inventory carefully, and be aware that shoppers might hold back and plan to buy later.
Be prepared to manage markdowns differently. Timing and the markdown amount might need to change. The “fast nickel” is still better than the “slow dime.”
At Bi-Lo, Smith took other steps to help ensure this season's success. Among them: product innovation, and reliance on better store execution. “Being a grocery, we couldn't set earlier like a lot of the big-box stores. We allocated goods to the stores right after Halloween, like every year,” he explained. For 2008, however, “We have enough newness in our overall assortment to pique a lot of customer interest. We just need to close the deal when they're in our stores. We have a strong group in the field that should drive this.”
To help that happen, Bi-Lo created a merchandising book for every season of the year, which highlights every item and details an execution plan. The chain also sent an executional DVD to the stores to “create more store buy-in to the plan, and to drive incremental sales,” Smith said.
He believes that electronics will take the hardest sales hit this year.
By contrast, Mansfield feels that toys will continue to be strong sellers.
Indeed, Mansfield's suggestion to link foods and nonfoods as gift possibilities reinforces the synergy between both sides of the store, especially at a time when meals at home are on the rise, and when consumer interest in food imports is high for special entertaining. Therefore, if one side is impacted by product safety concerns or unanticipated import restrictions, it could affect retailers' abilities to merchandise holiday events.
With that in mind, Bob Bauer, president of the Association of Food Industries, Neptune, N.J., a trade group for food importers, described “cautious optimism that sales will be strong enough to pull everybody through OK. What happens this holiday season could play a large role in what happens in the coming year. If [it's] not good, retailers might not buy as aggressively.”
He suggested that recipes and do-it-yourself gift basket assembly in stores would be timely ideas that appeal to dollar-pinched seasonal consumers. “People want to hold on to these happy times as much as they can. They associate the holiday with a good feeling, and will buy for it,” Bauer said.
Of course, the cloud of product safety looms over any seasonal purchases consumers might make. The melamine contaminations in food from China prompted the U.S. Food and Drug Administration to take a highly unusual broad-stroke action in mid-November: It ordered that food products from China made with or derived from milk be detained at U.S. ports until they can be tested by independent labs meeting FDA standards, and are determined to be melamine-free. Some suppliers took watered-down milk and added melamine to artificially raise protein readings on quality tests, according to an Associated Press account.
The human harm that resulted has overshadowed even the lead paint dangers in nonfoods, which prompted recent recalls of items such as Casper the Friendly Ghost Halloween mini-figurines, Harry Potter bookends, and necklaces for tweens, according to the U.S. Consumer Product Safety Commission.
Besides safety issues, “China is the biggest piracy nation. It's not just DVDs. It's everything, from A to Z,” Peter Navarro, a business professor at University of California-Irvine, told attendees at the recent 2008 Chief Housewares Executive SuperSession in Chicago. “It provides production cost advantages … but that will not continue forever. Tougher copyright protection will ultimately raise costs.”
China is also the most polluted country in the world, with 16% to 20% of the country's rivers and streams polluted, which leads to significant health risks and manufacturing shutdowns as conditions worsen, Navarro added.
“I do not think that a country in Asia has experienced more change in such a short time, or because of so many reasons, since post-World War II times [as China],” said Unified's Ishii. “All of these changes combine to result in a situation in which our expectations — pricing, delivery, ways of doing business — of China will change dramatically.”
With an eye on possible changes and hoping for a better holiday season in 2009, Bi-Lo's Smith will take his usual January trip to China. “We will aggressively work the overseas factories to obtain the best-quality goods at the best price. We will continue to build those relationships, just as we do every day with our domestic partners.”