Retail executives are split over whether an under-supply or an over-abundance of inventory would be worse for a company's bottom line this holiday shopping season.
According to a survey of retail finance executives by BDO USA, 82 percent of CFOs either increased or maintained inventory levels for the 2011 holiday season. However, there was a split among respondents who claimed insufficient inventory (53 percent) would be a greater risk and those who claimed too much (47 percent) would be more harmful.
While a mere 19 percent of retailers are cutting their inventories as a primary response to rising costs, 70 percent are either passing cost increases onto customers or enhancing management of their supply chains.
"Retailers are relying on interesting product offerings and enhanced mobile and online shopping experiences to make the registers ring this season," said Al Ferrara, a partner at BDO. "But unfortunately for shoppers, retailers ordered holiday inventory when raw material prices were at all-time highs."
To preserve margins, Ferrara added, the need to pass along cost hikes to consumers was inevitable.