Stocking the Sleigh: Smarter Inventory Management for the Holidays

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As shoppers clear away decorative cotton cobwebs and dust off their fiber optic reindeer, retailers are preparing for high inventory turnover unique to this time of year.

Despite efforts to develop accurate forecasts, the slightest oversight can shake even the most prepared retail businesses right down to the bottom line. For instance, retailers felt the heat of surprise demand after the success of Disney blockbuster Frozen rocked sales in the toy industry in 2013. According to a survey conducted by Fortune, Frozen merchandise topped one in five parents’ holiday shopping lists following the film’s release in November of that year.

Ultimately, retail franchises nationwide, including Toys ‘R Us and the Disney store, suffered from total depletion of their Frozen inventory at a rapid rate. The shortage lingered long into the Spring of 2014, as Walt Disney Company acknowledged a time lag in the supply chain, sparked by surprise consumer demand. And though retailers everywhere could reasonably consider the factors that influenced that scenario, explaining the effects of poor inventory management to a wide-eyed child with high hopes for an Elsa doll is no easy feat.

With the fall and winter holidays occurring in rapid succession, allocation, pricing & promotional strategy, optimizing assortment, and replenishment can pose a challenge for retail franchises. Though businesses have different ERP or POS systems, predictive analytics solutions seamlessly integrate with their existing IT infrastructure and offer a viable means of optimizing franchise supply chains, and promotions to ensure that no customer – big or small – has to “let it go” when it comes to their seasonal preferences.

Here are three ways that business owners can facilitate a speedy turnover without much negative impact to their bottom line:

Harvest a bounty of SKUs for less

Franchise systems, in particular, encounter unique challenges in terms of purchasing, allocating, and replenishing inventory optimally. A franchise retailer might opt to participate in a bulk discount to cut costs on inventory. However, evaluating the program’s viability can be tricky. Retailers could benefit from intelligent prescriptive tools that can uncover whether or not a vendor’s “special offer” is actually profitable, and suggest an actionable plan to allocate, and sell off the merchandise effectively. This can also apply to planning, and maintaining the correct assortment. Decision-makers must take physical space restrictions, demand forecasts, and product cannibalization, as well as assortment depth vs depth factors into account for each participating store. Additionally, they must account for the fact that not all stores perform the same, or have the same geo-demographic attributes.

Smart predictive analytics systems will suggest the optimal “breakdown” of how much each store needs of each respective item. Beyond that, they can assist with replenishment – tracking sales and demand in real-time while automatically generating new orders. These systems consider demand, on-hand inventory, in-transit inventory, and on-order inventory to reduce manual labor while ensuring that retailers never run out of hot-ticket items at any location.

Make a list and check it twice

Many retailers are using traditional statistical methods of forecasting, and business intelligence tools that are backward looking. This leaves retail analysts to consolidate forecasts manually, as they are limited by the inability to look at their businesses more granularly and comprehensibly.

These methods tend to fall short when it comes to accurately calculating lost sales, for instance. Without careful consideration, retailers might forecast a similar scenario the following year. Furthermore, if a retailer plans to introduce new products or product categories, he or she has no history to draw upon when it comes to determining how much product to order, which stores should receive it, and what the pricing should be.

A predictive analytics solution that considers the effects of promotion, price changes, events, and seasonality can help retailers understand what the true demand is and how that demand might change during the holiday season.

Execute merrier promotions

Special events, one-time deals, and promotions are difficult to forecast in terms of projecting increased sales. Having the right inventory at the right place to fulfill a promotion is a delicate balancing act in itself. Add this to the ongoing stress of optimizing pricing product-by-product and this area can easily become a pain point for retailers.

While many retailers try to keep their price at a certain point to compete with competitors, this is a grave mistake. But if price wars are not profitable, then what is?

Many retailers try to focus on competitive pricing. These businesses are often making a costly mistake. While maintaining a competitive position, or brand image, is important, retail predictive analytics will optimize prices and promotions within the confines & policies of the retailer while maximizing sales and profitability.

Contemporary predictive analytics solutions integrate critical aspects of your business such as promotions and replenishment, so that retailers actually bring in enough promotional inventory to proactively fulfill the uplift in sales. They can also suggest which media types work better for certain products. While Facebook advertising might have been a big hit for getting this year’s Halloween costumes off the shelves, in-store advertising might be more effective for those inflatable snowmen.

Additionally, these systems approach price optimization in an integrated way. It’s impossible to look at all products at all stores individually, yet different factors drive sales for different products. For instance, some products are driven by an optimal price, while others are driven by a noticeable discount. Smart solutions can identify what drives sales of each product and recommend the pricing and markdown strategies that will get rid of inventory by end of season at maximum gross margin.

As retail franchises prepare for the holiday rush, predictive analytics solutions can help them establish a method for the inventory madness. With the help of proven retail predictive analytics technology, franchise businesses of all sizes and structures can melt away the pressures of seasonal demand this holiday season.

Yan Krupnik is the Business Development Manager at Retalon, a leading provider of advanced retail predictive analytics solutions for Supply chain, Inventory Management, Pricing, Merchandising, Planning, and Marketing operations designed for the unique and complex environment of Omni Channel retailing.

To find out how Retalon can support your franchise retail business, please call 1.888.837.0268 ext. 224 or e-mail discover@retalon.com

www.retalon.com