CFOs Split on Inventory Plans for the Holidays

As retailers head into the holiday season, visions of optimal inventory levels, rather than sugar plums, are dancing in their heads…

According to the BDO USA, LLP Retail Compass Survey of CFOs, just 17 percent of CFOs plan to increase their inventory levels during the 4th quarter of 2010 – perhaps a nod to the less than stellar springtime conditions when retailers were making those decisions.

Nearly half of retail CFOs (42%) eye the first half of 2011 as the right time to increase inventory purchases. Others are holding off – sixteen percent are delaying until the second half of 2011, and 24 percent are waiting to increase inventory until 2012 or later. Just one respondent indicated that they had no plans to increase inventory purchases.

With most CFOs planning to bulk up their inventory before next summer, retailers seem to be buying into the positive signs that the consumer is on the rebound. Experts say the recession is “officially over,” and comparable store sales rose in August on the heels of unprecedented deep discounting over the back-to-school season. But despite this momentum, retailers are still contending with a battle of two consumers -– those who are beginning to buy discretionary items again, and those who are still focusing on just the basics.

It seems that retailers are unsure which consumer is going to show up this season. According to our survey, CFOs are split over whether too much inventory (53%) or insufficient inventory (47%) presents a greater threat to their holiday sales numbers. A delicate balance seems to be the key to success this year to avoid the excessive inventories and discounting seen in 2009.

When all the holiday receipts are tallied and the gifts unwrapped, will retailers have a Red Ryder BB Gun or Pink Bunny Pajama kind of season?