The four inventory management wisdoms for Christmas
By Aad Smits –
Christmas, many people look forward to it all year: decorating the house, cooking enough pudding for the whole week and having a great time with family and friends. But for some people this time of the year means sleepless nights, headaches and lots of stress.
For most retailers it is the most important time of the year for sales, with longer trading hours and markdowns making sure that customers’ demand can be satisfied.
Some retailers make up to 50% of their yearly turnover in the run-up to Christmas
Especially for companies sensitive to Christmas purchases, e.g. perfumery chains or electronics shops, the weeks before Christmas are extremely important and can put a lot of pressure on its employees and its operations. In the area of inventory management, it can be a struggle to have the right goods, at the right time, at the right place. Not having the item in stock obviously leads to lost sales, while in keeping too much inventory lies a risk of obsolescence.
Diving deeper into the retail industry, it may be clear that many companies struggle to smoothly manage their operations during what is supposed to be the most wonderful time of the year. The aim of this article is to help you by providing the four inventory wisdoms for Christmas:
The assortment is probably the most important decision that needs to be made: which items will be ranged and via what channels. Do you sell all items via all channels, or is there differentiation between channels and even within each channel? We often see that the online assortment is more extended than the in-store assortment, because having centrally stocked goods leads to more flexibility and lower risk. An ABC/XYZ analysis helps to understand what products contribute most to sales based on different criteria such as turnover and order lines. Such an analysis provides a solid foundation for deciding what assortment strategy will be best for the business.
We all know that price is a marketing instrument, but this should be an educated decision that aligns with company strategy. Do you differentiate per sales channel, do all products in the same range have the same price or do the outer range items get different prices (e.g. deviating colours/sizes), and what about the price in relation to the price of your main competitors? This seeks to guide customers towards making purchase decisions that align with the assortment strategy, for example, having exclusive online pricing to support ecommerce as a main channel. An incremental margin analysis provides insights on the profitability of your assortment.
Especially during Christmas time, promotions can give sales a serious boost. Consumers are ready to spend their money, but during this particular time of the year, shopping should be experiential – the winners are those who join the festivities. A promotion does not necessarily translate into a price reduction but could, for instance, also include a free (Christmas) gift. The aim of a promotion is to attract customers and to increase sales, and a promotion can be considered successful as long as this has succeeded. Creating a promotion plan upfront will put the organisation at ease rather than doing some ad hoc promotional activities. From an inventory management perspective, a promotion plan will enable planners to account for promotions in their forecasting and ordering, enabling businesses to become proactive and avoid issues with excess or shortage of stock.
As a retailer you can prepare all the previous steps, but if there is no stock, you can’t sell. As always, product availability is key to driving sales. Given that demand peaks at the end of the year, forecasting sales for this period requires extra attention and cannot use average historical sales. Seasonal patterns need to be taken into account and it is best to do so with accurate data, looking at sales patterns of the same period in the past year(s). Taking this into account, it allows you to calculate a forecast for the end-of-year sales period.
Generally, Christmas shopping begins in 4 to 6 weeks prior to Christmas. For this entire period, it is often important for businesses to temporarily increase the days of stock cover. This means that shelves are slowly filled to a higher level to be prepared for the Christmas sales and to relieve operations from stress around the Christmas peak. Increasing inventory prior to or at the beginning of the Christmas sales period is less risky, but inventory should be reduced back to regular levels in a timely fashion so as to avoid ending up with obsolete stock.
Prevent headaches and sleepless nights, make sure that product availability does not ruin the party!