Retail sales appear to be okay, so why are many stores struggling? The answer lies in the inventory-to-sales ratio.
The inventory-to-sales ratio measures how many months worth of product retailers have in stock, given current sales pacing. Prior to the recession of 2009, retailers tended to carry an I2S average between 1.5 – 2.0 months. Since the recession, inventories have become leaner — but this trend might be a bit misleading, since “non-store” retailers have acquired more share since then and bring down the weighted average.
The I2S ratio for US retailers hit 1.5 months in December — the highest level for this metric since the deep recession of 2009. Higher levels tend to be inefficient for retailers, but can be good news for consumers — as more inventory discounting occurs.
So while retail sales have been okay, physical inventories at traditional retailers are historically high — meaning clicks (e-commerce) are grabbing share from the bricks.
Trends like this point to the continued ascent of big non-store retailers like Amazon.
Sure enough, January sales at non-store retailers (e.g. Amazon, eBay) were +1.6% while department stores saw an average decline of -0.8%.
Read more about current retail trends here: Retail Sales Inventory Ratio | Business Insider.
Dave Eckstein is a Partner in the firm ESA & Company. He specializes in highly profitable market share growth for local businesses and gets a kick out of demonstrating a declining cost of customer acquisition. He plays baseball, but isn't that Dave Eckstein.