- Alex Palmer

Retailers and suppliers are preparing for a tough holiday season, according to a new report. The study, "U.S. Small and Middle Market Outlook 2009: Retailers and Suppliers Take Stock of Economic Downturn," found that 67 percent of retailers planned to stock less inventory than in 2008. Nearly half (48 percent) said they should have carried less inventory during the first half of 2008.
 
The research draws on responses from two surveys, the first of 110 retail executives and the second of 104 executives at retail supply companies. Of the retailer respondents, 46 percent said they reduced their staff levels, 42 percent halted planned expansions and 29 percent delayed store renovations.
 
The retailers did not have high expectations for a fast turnaround, either. While 47 percent of respondents believe the financial markets will improve next year, 45 percent believe it will take two or three years before consumer spending returns to levels seen in 2007.
 
Retailers are looking for ways to balance these conservative efforts in other aspects of their business. In preparation for the holiday season, 69 percent plan to expand online and direct selling, 56 percent plan to advertise more aggressively and 66 percent will offer greater discounts.
 
"These results corroborate what we have been hearing anecdotally from the marketplace," said Burt Feinberg, managing director and industry group head of retail finance at CIT, in a statement. "Many retailers continue to be concerned about consumer demand and are following conservative inventory and pricing tactics...so that they can be better positioned for what is hopefully a resumption in consumer spending in 2010."
 
The suppliers to these retailers are feeling the effects of the retailers' troubles. Two-thirds (66 percent) of suppliers said they have been affected by the bankruptcy of a retail customer and 59 percent expect to see more bankruptcies in the next 12 months. Twenty-three percent of suppliers said they are protecting themselves from these bankruptcies by using factoring and credit insurance more.
 
But in addition to the concerns about bankruptcies, nearly half of all the respondents (48 percent) expect merger and acquisition activity to increase over the next year, due to the greater availability of credit (34 percent) and reduced valuations (32 percent).
 
Jon Lucas, evp and chief sales officer of trade finance at CIT, said in a statement: "The decline in consumer spending has trickled down from retailers to the manufacturers and vendors that supply them."