As holiday shopping approaches, retailers are keeping less in stock this year

(This post originally appeared on The Washington Post)

Last month, I wrote about how a Gallup survey predicted that this holiday season is shaping up to be one of best in recent memory. It’s not surprising, considering that the economy has been growing, people are working and both business and consumer confidence levels are at very high levels. You would think that in light of these strong forecasts, retailers would be stocking their shelves in anticipation of eager buyers.

But that’s not what’s happening. Many big retailers are actually cutting back on their inventory levels in advance of the holidays. What gives?

In the industry it’s called dynamic demand forecasting–and it’s a hot topic this year. Reuters reports that Macy’s, J.C. Penney, Kohl’s, Nordstrom, Dillard’s and Lord & Taylor are buying less inventory and demanding shorter lead times from their suppliers for delivery. These retailers have been placing their holiday orders just three to four months ahead of schedule rather than the typical nine-months-to-a-year.

The idea is to focus on just the fast-selling items and to refresh them quickly. This way–in these days of declining foot traffic–retailers are hoping to avoid buying stuff that doesn’t sell and then being stuck with excess inventory, which eats up working capital and kills profits. It could also “instill urgency” in a consumer to buy now before an item sells out.

“There is a big push from department stores across the board this year to cut down lead times and manage inventory tightly,” Robert D‘Loren, chairman and chief executive of U.S.-based Xcel Brands, which supplies branded apparel to chains like Lord & Taylor and Dillard’s and private label clothing to other department stores said in the Reuters report. “We are delivering orders on weekly cycles with plans that are six weeks out.”

It’s a risky game. People in the industry worry that some consumers may not enjoy having fewer choices or get discouraged if products run out. Also a concern:  smaller vendors that won’t be able to keep up with the demanding requests and shorter lead times. If the buying process isn’t managed effectively, retailers may see frustrated customers leaving the store and buying online instead.

Still, it’s not like Macy’s and all the others have much choice. The changing dynamics in retail, thanks to the growing popularity of online shopping, is forcing brick and mortar stores to potentially sacrifice some orders in lieu of better inventory management. In other words . . . grow margins, not just sales.

The lessons from this holiday season shouldn’t be lost on smaller merchants who have very similar challenges. If the model works successfully for the big companies in 2017, it would may make sense for mom-and-pop retailers to consider adopting their own version of dynamic demand forecasting next year.