Dropping Inventory

Spurred by the floor-stock tax, retailers keeping fewer SKUs, cartons on hand

[This is the final story in a three-part series analyzing the effect this spring's federal excise tax (FET) hike has had on tobacco retailing thus far.]OAK BROOK, Ill. -- The fear was sincere, the angst was tangible. There was an odious addition to the unprecedented federal excise tax increase: a one-time floor-stock tax on all tobacco products in inventory, excluding cigars.

Industry analysts and retailers agreed, the one-two punch of the excise tax coupled with the floor levy would permanently alter how retailers buy and merchandise tobacco products. Three months [image-nocss] since the taxes took effect to underwrite expansion of the federal State Children's Health Insurance Program (SCHIP), those predictions are spot on.

According to an exclusive tobacco survey of the convenience store channel conducted by CSP Daily News and UBS tobacco analyst Nik Modithe first to solely focus on the c-store sectormany retailers are consciously carrying less inventory today than they were before the FET hike took effect on April 1.

Asked, "How many days of inventory are you holding and what is this down from prior years?" virtually every retailer nodded that he or she had slashed inventory to control merchandise costs. From the responses of more than 50 chains representing upwards of 20,000 c-stores, many retailers have shaved tobacco stock anywhere from two days to two weeks.

Among the comments:
"Approximately 1.2 weeks per store...down from 1.5 weeks prior." "15 days currently, down from 22 days." "Holding 10-14 days when past practice was 30 days." "14 days now; 21 days prior year." And then there was this continual drop from an operator: "We are down to 21 days from 28. Efforts will continue to move the number to a goal of 14 days."

Modi of UBS, New York, isn't surprised by the inventory downturn. "A reduction in inventory was expected given the cost of buying cigarettes post the federal excise tax," he said. "The brands most likely to be impacted will be the slow-turners."

Not everyone has cut inventory levels, though. Some retailers said they continue to carry a 14-day supply, others maintain a week or so, and one retailer tries to hold a 38-day supply.

Modi said the balance of eliminating slow-movers and carrying a broad assortment will be decided on a chain-by-chain, store-by-store basis. "The time has never been more important for retailers to have a good handle on SKU efficiency within their stores," he said. "The last thing you want to do is cut down on brands/SKUs that the consumer wants."

Click hereto read the previous stories in this series.

Modi will deliver a complete report of the survey at the sixth annual CSP Tobacco Category Review Meeting, August 5-6. Space is limited.Click here to learn more.

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