Byline: Carol Emert

WASHINGTON — Retailers’ inventory levels rose and turnover slowed in October as merchants struggled to keep stocks in line with sluggish sales, the Commerce Department said in a report released Thursday.
Separately, the Federal Reserve reported that in November, production of both textiles and apparel slipped compared to both October and November 1994.
According to Commerce, department store stock levels in October were 1.2 percent higher than in September and 7.3 percent higher than in October 1994. Inventories at general merchandise stores, a category that includes both department stores and discounters, rose 0.9 percent for the month and 6.3 percent for the year.
Among all types of retailers, inventories increased 0.9 percent for the month and 6 percent for the year. Auto dealers experienced the biggest year-over-year increase, 10.6 percent. For the month, their inventories were up 1.7 percent.
Apparel specialty stores, however, bucked the trend by posting lower inventory levels in October than they did in October 1994. The specialty store category was the only group tracked by Commerce whose inventories declined over the year. Specialty store inventories were down 0.4 percent compared to October 1994, although they rose 0.8 percent against September.
“That is a real distress sign,” said Sandra Shaber, an economist with the WEFA Group, Bala Cynwyd, Pa. “Hundreds of [specialty] stores are going out of business and liquidating their merchandise.”
For department stores and discounters, Shaber noted, the growth in inventories comes despite conservative sales forecasts by most corporate decision-makers who see the economy slowing.
Shaber added, “I would think they would be able to control those inventories better through the newer automated replenishment systems, but two things happened. One is, sales deteriorated even faster than what they thought, and two, retailers just hate to miss a sale because they don’t have the stuff in the store to sell.”
The period of time that it would take a retailer to sell off all on-hand inventory rose in October for specialty stores, department stores and general merchants, according to Commerce. For department stores, the turnover time increased in October to 2.45 months from 2.39 months in September and 2.36 months in October 1994.
General merchandisers’ turnover rate rose to 2.38 months in October from 2.33 months in September and 2.30 months in October 1994. And despite their relatively low inventory levels, specialty stores would also need more time to clean out inventory: 2.61 months in October, compared to 2.53 months in September and 2.55 months in October 1994.
The combination of slow sales and growing inventories means that retailers can expect “more inventory overhang going into the beginning of the year, which just compounds problems,” Shaber said.
But Kathy C. Yohalem, director of strategic marketing for the accounting firm Coopers & Lybrand LLP, New York, had another spin on the October inventory numbers, seeing them as an indication that retailers were reading demand correctly.
Specialty stores’ stocks were low because of a lack of demand, while department stores and general merchandisers were likely stocking up on popular items such as home furnishings and electronics, Yohalem said.
Part of the buildup is also explained by the fact that consumers are waiting until later in the holiday season to buy, in anticipation of deepening discounts, Yohalem said.
“Retailers will move their inventory, but at what price?” said Yohalem. She is forecasting holiday sales that are flat compared with last year and profit margins that are lower.
On the production end, both textile mills and apparel manufacturers faced declines last month. Textile production dropped 0.1 percent compared to October and 4.3 percent against November 1994. Apparel output declined 0.7 percent for the month and plummeted 8.9 percent for the year.
“The decline in those industries has been going on for years,” Shaber said. “It is shrinking and it will continue to shrink.” — Fairchild News Service

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