An interesting article in the AFR, “Retailers counting on bumper weekend to meet Christmas forecasts”, about the trends in consumer spending leading up to Christmas. The article mentions that “retailers who have held off discounting to protect margins are counting on a “big bang” finish to the Christmas shopping season to help meet sales and earnings targets”. Christmas is a key cash generating period for retailers, with cash from sales over the period often funding investment in the next season stock. Retailers are optimistic, but with year to date trading down, some have a lot riding on a late splurge by consumers to achieve their forecasts. In this environment, managing cash and working capital is critical.
If sales don’t hit expectations, the conundrum faced by retailers will be the appropriate stock clearance channels and level of discounting required to help move stock and free up cash without impacting their brand. If sales targets are missed, there may be little choice but to pull the discounting lever to clear stock and free up cash. To manage this risk and protect their brand, retailers should act early to assess the potential impact of weaker sales and options to quickly reduce costs. It is important to assess options and reforecast, as well as engage with stakeholders early around any funding requirements and the strategy to see through the weaker market conditions. Contingency planning to deal with any potential industry shocks, such as the collapse of a key competitor or customer/wholesale channel, will also strengthen businesses ability to respond if consumer spending doesn’t meet expectations over Christmas.