Implications of Easter 2009 on Post-Holiday Clearance

The timing of Easter 2009 becomes a critical component of how this year's post-Holiday clearance will be managed.

The single most important tactical decision for Spring 2009 facing merchants is the management of the post-Holiday clearance period. Essentially, there are only two options. Either clearance is managed aggressively or it is managed conservatively. Generally, the strategy for clearance is dictated by the level of post-Holiday clearance inventory, the timing of Easter, and the existence or lack of significant changes in technology or trend.

We've already noted that despite earlier and deeper promotions, and tighter inventories heading into Holiday, the drop in consumer demand exceeded estimates by an order of magnitude. Some retailers will garner share gains, and have clearance inventories close to expectation or even below. Most will not. As a basis for discussion, the post-Holiday playing field can be characterized by much higher inventories of clearance than planned, and deeper pre-clearance promotional pricing. This argues for an aggressive clearance posture.

Technology and trend are not stimulating a need to make space on the floor, or in the consumer consciousness for something radically new. Without exception, all major categories of retail suffer from a distinct lack of compelling innovation, be it color, style, feature or delivery platform. While there are individual products which defy this generalization, on the whole, the market is relatively stagnant across the board. This argues for a conservative clearance posture. In some categories, it may even argue for the "store it and try again" tactic....which makes sense when very little if any change exists from "model year" to "model year"....usually in basic apparel and hard goods. However, given the working capital issues facing all retailers in Spring 2009, I'm not sure storing merchandise is a viable option.

Easter is at it's latest date since 2006....and three weeks later than in 2008. Historically, "Spring" demand accelerates with Easter. A late Easter typically hurts retail in that it reduces the "full price" portion of Spring, accelerates the promotional portion, and then delays the start of Summer. Under normal circumstances, retailers plan for Spring store sets and anticipate relatively slow rates of sale until just prior to Easter. Late Easter allows stores to delay the plan-o-gram set, slow the flow of merchandise, and in general, be conservative on clearance liquidation. Unfortunately, this means "trading" full or promotional priced sales in March for end-of-season clearance sales, with all the attendant impacts on total volume (lower prices on late stage clearance are not made up with higher unit volume) and gross margin. Still, the timing of Easter argues for a conservative clearance approach.

However, as noted, the macroeconomic conditions trump all other considerations. In the climate probable for Q1 2009, the consumer will continue to experience significant financial hardship. Mortgage, credit card payments and living expenses are not going to miraculously become appreciably lower. Real income is not going to rise. In fact, unemployment overall is expected to rise, while real wages are expected to fall. So in reality, the consumer still employed is likely to actually have less disposable income in Spring 2009 than they have now. Wonderful. The ramifications for managing clearance are not pleasant. Regardless of the analysis above, the only viable option for moving the larger-than-expected and lower-value (remember the deeper Holiday promotional discounts) inventory levels is to go out aggressively and continue to drop price quickly and significantly. Stealing "share" in Q1 is going to be expensive....and it's the only option. Being conservative will mean stagnating clearance stocks backing up into the space, money and timing needed for new merchandise arrivals.....because some of the competitive is going to be aggressive.

We'll explore "how" to go about being aggressive, particularly if you use optimization software or rules based markdown timing and cadence.