Almost 80 percent of chief financial officers at the 100 largest retailers say that too much inventory is the greatest risk factor to the viability of their businesses during recessionary periods. High inventories lead to heavy discounting when consumer demand is lacking. This, in turn, undermines gross margins. When demand is very weak, gross margins can disappear completely as retailers may be forced to liquidate slow moving merchandise at prices below their wholesale cost. Paradoxically, retailers also worry about having too little inventory to meet consumer demand and thus losing sales when consumers cannot find the products they are looking for on retailer’s shelves. Hence, retailers attempting to manage their inventories during a recession often feel that when it comes to stocking their shelves, they are damned if they do and damned if they don’t.
How might retailers deal with this inventory dilemma more effectively during recessionary periods? What might suppliers do to help retailers address this problem?
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