Guest blogger Dan Avila, a partner in Global Supply Chain Services for Tompkins Associates, wrote this post on the pulse of retail at this critical time between the economic situation, retail recovery, and the upcoming holiday buying season. Dan's experience includes a focus on retail, with over 20 years in supply chain and 10 years in consulting. Here are his thoughts on the matter.

-Jim

There’s a special "glow" around the retail industry as we move into the holiday season, and it has nothing to do with Rudolph the Reindeer’s nose.

Almost daily, I read a news article predicting what will happen with retail sales this holiday season. In a recession, it makes sense that a brighter light shines on retail and sales predictions. I have seen some predict a 2% decline and others predict as much as a 4% increase over 2008. Either way you slice it, retail is still in the middle of a downturn with some retail sectors performing better than others.

Discounters continue to perform well and luxury item retailers continue to suffer, with all other sectors somewhere in between. While many sources believe the worst of the downturn is over, consumers are still going to be cautious this holiday season. According to a recent survey from the National Retail Federation, Americans are not ready to declare an end to the recession until unemployment levels subside. So the return of retail is not looking good for this holiday season, but many believe that retail will begin to recover in 2010.

It has been vital for retailers to adapt their operations during the downturn in order to keep their doors open. Two significant changes were necessary. First, they reduced their overhead by eliminating unnecessary positions and costs, and secondly, they reduced their inventories by ordering less and by limiting their selection of products to their customers. Because of these two approaches to reducing retail supply chain costs, retailers are in a much better place from an operations and profitability perspective once customers return to their stores.

So what happens in 2010 when retail rebounds and becomes strong again? Will retailers be poised to take advantage when customers come back through their doors? Will the tough lessons learned in 2008 and 2009 help retailers in the future?

The Great Comeback has begun and each of the areas of our economy will slowly rebound, with retail typically lagging behind the other sectors. I see three key areas which will make or break retailers during the Comeback, two of which we have already discussed – reducing operating costs and reducing inventories. The third is evaluating logistics networks.

1) Cost Reduction: The Great Recession has taught surviving retailers many lessons, one of which is to become lean. By eliminating redundant positions, re-thinking the organization structure, and reducing unnecessary costs, retailers are stronger than they have been in a long time. This must continue when the customers return, or they may find themselves in the same situation when we have another downturn.

2) Reduced Inventories: The lessons learned during the Great Recession will be long lasting. Several retailers did not survive due to their high inventory levels and their inability to adapt with the changes in demand. Moving forward, successful retailers will be agile with their inventories and will be quick to pull the plug on low-selling items.

3) Logistics Networks: Many retail logistics networks have not been evaluated in well over five years, and therefore reflect a completely different economic situation. From the cost of fuel to the cost of labor to offshoring and logistics outsourcing, there have been many changes that can make logistics networks obsolete and ineffective.

While we may not be able to predict the exact end of the recession and the beginning of the recovery, one thing is for certain: For retailers to survive, they must take the lessons learned from the Great Recession and use them to fully recover and prosper during the Great Comeback.

Photo credit: timparkinson