The week following Christmas is known for big blowout sales and markdowns—desperate pleas from retailers to rid their shelves before the New Year. While these mega discounts are great for consumers anxious to spend their newly unwrapped gift cards, they can cost retailers hundreds of thousands—or even millions—in lost potential revenue.
Effective and efficient inventory management is important at any time of the year, but it is a fundamental necessity during the post-holiday season, when imbalanced inventory, forced markdowns, and ultimately lower demand caused by retrospective planning plague retailers most. So how can retailers cope with the chaos and manage inventory cost-effectively? Here are three ways that retailers can clear house after the holidays without losing big:
Accurately forecast demand. In today’s omnichannel environment, calculating demand is more challenging than ever. The majority of forecasting models that software vendors provide today don’t give a true demand forecast because they use traditional statistical methods. True demand forecasts have to eliminate the effect of past promotions, new products, product cannibalization and dozens of other influencing factors that mask real demand.
For example, if you sold 150 Christmas ornaments two years ago, and then another 150 last year, your forecast engine would suggest that your demand will be 150 this year as well. However, real demand may have been 200 ornaments, but you only sold 150 because this is what you had in stock. You’ve actually been experiencing 50 lost sales every year, and the forecast engine will continue to underestimate demand, causing you to incur these costs again and again.
Similarly, if the marketing department creates promotions for certain products but the supply chain team doesn’t account for increased demand, the retailer will end up selling regular inventory at a discounted price and enduring more lost sales due to additional demand. This inconsistency costs retailers millions of dollars every year. An omni channel approach to retailing means that demand forecasting should also be done for the entire business as a whole, and only then broken back down to the store/SKU level.
Balance inventory between stores. Retailers often find that they are overstocked on certain holiday products with diminishing demand at some stores, while other stores are running out of stock because those same products are in high demand. This is a huge cost to incur for stores on both fronts. The stores that are overstocked will now have to markdown their inventory, and will potentially have dead inventory that is clogging up shelves, which prevents them from introducing new inventory for the new season. On the other hand, stores that are out-of-stock will experience lost sales unless they begin replenishing the merchandise for this store, which is costly and unnecessary, since they have this inventory in other stores. This drives customers away and damages the brand’s image. A predictive analytics solution for inter-store inventory and assortment balancing analyzes every single influencing factor of a retail supply chain, and recommends the optimal inter-store transfer schedule to move merchandise from stores where it is collecting dust on the shelf to stores where the same products are out-of-stock and in high demand.
Optimize markdowns and discounts. Sometimes, even if you have the right forecast and have balanced inventory and assortment between stores, you still have to resort to promotions or markdowns to get rid of the inventory by the end of the holiday season. Instead of blindly making major markdowns and discounts as a way to simply get rid of stock, retailers should be equipped with the tools to optimize pricing. A predictive analytics solution will help retailers build the optimal pricing and markdown strategy that will sell off the inventory in time for the New Year while still maximizing gross margin.
The challenge lies in the fact that different products have different factors that drive the sales of each product. Some products may be driven by a noticeable markdown, while other will only move when they are at an optimal price. A sophisticated predictive analytics solution will tell you what drives sales of every single product down to the store/SKU level. This way, retailers can clear their remaining holiday inventory without making major sacrifices.
With an integrated approach that forecasts true demand, balances inventory and encourages communication across all departments of the retail business (i.e. marketing, supply chain, etc.), retailers can ensure that inventory is sold at a maximum gross margin. Retailers will be surprised how quickly they will clear slow moving merchandise, boost inventory turnover and increase ROI this post-holiday season. With a predictive analytics solution in place, retailers will be equipped to quickly and effectively sell their holiday inventory and will be well-prepared to dive into the New Year.
This article was syndicated from Business 2 Community: 3 Ways Retailers Can Clear House Post-Holiday Season Without Losing Big
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