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Retailers' Shelves Won't Stop Sagging Soon

Economic Trends


With consumer spending picking up, retail inventory-to-sales ratios are starting to decline. But that doesn't mean retailers are about to go on a stock-building spree in the months--or years--ahead, cautions economist Richard B. Berner of Salomon Brothers Inc. Throughout the expansion of the 1980s, he notes, retail inventories soared to unprecedented levels because of an explosion in retail outlets--in response to the surge in consumer spending after the 1982-83 recession, favorable tax laws, and the ready availability of financing.

From 1982 to 1987, for example, traditional retail establishments (excluding mom-and-pop stores, which grew even faster) multiplied at a 2.5% annual clip. That's five times faster than the growth rate in the previous 20 years. By contrast, the growth rate for real consumer goods purchases increased much more slowly, from a 2.8% annual pace to 4.6%, or by only about two-thirds.

The upshot was vast overexpansion in both outlets and the inventories needed to stock them--and soaring inventory-to-sales ratios, despite the growing use of such devices as product scanners at checkout counters to keep inventories under control. And as Berner sees it, the shakeout in retailing that began a few years ago still has to run its course before ratios are pared back to healthy levels. "The process," he says, "may drag on for some time, dampening the pace of the recovery."GENE KORETZ

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