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TURNOVER: A NEW LEAF.

Byline: Arnold J. Karr

It's been a month of celebration. My family's had an inordinate number of graduations, engagements, weddings and birthdays this June, enabling us to flex our credit cards and, last week at least, avoid the bulk of the around-the-clock coverage being heaped on the Michael Jackson trial.

All these happy occasions have given us an additional reason to be in the stores and shop the twin constellations of Cyberspace and Catalogia in search of the perfect gift, and perhaps even a thing or two for ourselves.

Having spent many years reading and writing about the progress retailers have made generating greater sales from smaller stock, I've been a bit taken aback by what seemed to me to be a high percentage of out-of-stock positions in numerous categories of merchandise. Add to this the usual problems finding sales help with any knowledge of the products and assortment on the floor and you have the recipe for mall madness, a condition no more appealing than its cousin, road rage.

My observations contrasted with last week's report in HFN that home furnishings retailers experienced a slight increase in inventory-to-sales ratios during the fiscal first quarter, although much of that was due to Sears Holdings Corp.'s absorption of Kmart.

The longer-term picture for the home market is actually a lot more positive. According to a study by A.G. Edwards & Sons, the St. Louis-based equity firm, home furnishings retailers have improved their ITRs -- inventory turnover ratios, cost of goods sold divided by average inventory -- 15.3 percent in the past 10 years. That's roughly equivalent to selling the same amount of merchandise with 15.3 percent less stock, or generating 15.3 percent more volume on the same inventory. Inarguably a good thing.

Furthermore, although they've yet to reach the lofty levels of the late '90s, home specialists as a group have produced six consecutive quarters of ITR increases through last year's final three months. Among the 51 publicly held retailers studied, Linens 'n Things had the fourth-best improvement in fourth-quarter ITR versus the prior quarter (3.1 percent), but Williams-Sonoma (down 4.1 percent) had the second worst, behind only RadioShack (down 4.4 percent).

Overall, retailers in the A.G. Edwards study saw ITR slip to 5.70 from 5.69 in the third quarter of last year for the second consecutive quarterly decline. In an accompanying note, the A.G. Edwards team, headed by Bob Buchanan, attributed the drop "to retailers simply having been unable to trim inventories fast enough against the backdrop of eroding sales gains."

But leaner inventories don't have to mean spot shortages and disgruntled customers. The key is adjusting inventory so that it's most likely to be where the most likely customer for it is. "The path to victory here isn't just managing the liquidation of the items that aren't good," said Scott Friend, president of ProfitLogic, which uses computer technology to boost retailers' bottom lines. "It's also about being in stock on the things consumers really want."

Typically, he said, retailers allocate merchandise based on store clusters, and the composition of those clusters is based on the volume done by the stores. Building the clusters on demographic characteristics just makes sense.

He quoted one of his clients: "If I'm going to compete in a Wal-Mart world, the only way I can win is with a better level of intimacy with the customer."

Perhaps an annual birthday card would be a nice idea, too.

Caption(s): Arnold J. Karr
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Article Details
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Author:Karr, Arnold J.
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Geographic Code:1USA
Date:Jun 20, 2005
Words:586
Previous Article:BOX SCORES; HFN EXAMINES THE PROFIT MARGINS AND RANKS THE BIG-BOX SPECIALTY HOME RETAILERS.
Next Article:DESIGNER INTERVENTION; SIGRID OLSEN'S NEW COLLECTION IS THE LATEST TO JOIN THE RANKS OF SOME PREMIER APPAREL NAMES IN BEDDING.
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