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Black Friday-Cyber Monday Weekend: Challenges Compound for Supply Chains

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As I pen this posting on Cyber Monday, there are already lots of predictions in the blogsphere regarding the sales activities for the 2009 holiday buying season.  The headline in today’s Wall Street Journal, More Shoppers Hit Stores, but Spend Less Each, (subscription may be required) summarizes a consensus of industry observers noting that while more shoppers turned out this weekend for the traditional start of the holiday buying season,  they spent less per shopper and tended to favor lower-priced items. The National Retail Federation estimated that 195 million U.S. consumers will have shopped both stores and online over this past weekend, up from 172 million last year.

If this trend continues, there will be revenue and supply chain implications not only for retailers, but also producers.

Last week, a Business Week article, Amazon Paces Holiday Tech Discount Drive, noted that early price cuts on consumer electronics led by Amazon and Wal-Mart may be good for consumers but not so good for profits.  Retailers began planning holiday price promotions for consumer electronics in mid-November, working with various brand suppliers to pre-select specific promotional items. Lowered prices and highly planned and marketed promotional items have definitely drawn the interest of consumers. The Consumer Electronics Association (CEA) estimates that these lower prices will boost unit volumes by 6% for consumer electronics, but cut overall sales by 7.5 %, Consumers are opting for cheaper netbooks instead of traditional laptops, or smaller flat-panel TV’s rather than bigger sizes.

I myself was a participant in Black Friday activity. Spending a few hours on Friday afternoon searching for a good deal on a 32 inch flat panel TV, it was rather interesting to note that while there were deals to be had, it appeared to me that most of the larger volume outlets were doing their homework and working with manufacturers to match price on the same model of TV’s.  

If this weekend’s trends hold for the remainder of this holiday buying period, supply chain and retail managers will be facing even more cost and business planning challenges.  Higher unit volumes with lesser revenue yield mean that previous cost efficiencies in production, logistics and transportation will be tested yet again, particularly if retailers attempt to replenish certain inventory prior to end of the period. Imagine being LG, Panasonic, Samsung or Sony, and being asked to possibly replenish a last minute shipment of hot-selling TV’s, but having to adsorb a lower margin transportation cost.  Since many retailers have already been practicing smarter inventory management to reduce overall inventory exposure prior to this period, their overall ability to make-up potential revenue shortfalls by a last minute buy may present an interesting scenario among seller and buyer.

As the Journal article also points out, if you were hoping to get your hands on that Zhu Zhu pet hamster, electronic reader, or bargain flat panel TV, you may well find yourself on an online auction site outbidding someone.

While others argue that in the past sales on Black Friday weekend have not been an accurate barometer of for the season as a whole, 2009 may well be different as this era of lean inventories across supply chains may dampen the ability to meet or surpass revenue and profitability goals. Having supply chain wide agility and responsiveness capability may be the acid-test for the 2009 holiday selling season.

 Bob Ferrari

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