Unlike normal base business where retailers and manufacturers have an opportunity to balance inventory over time, with the seasonal holidays like Thanksgiving, Christmas, and New Year you either get it right or you don’t.
Imagine it is 7:35 p.m. on December 31 and a consumer goes into the store to buy champagne. But, alas, the shelf is empty — it is out of stock. As a result, the consumer does one of two things: look for champagne in another store; or, simply, not buy anything. Either way in the consumer’s eye the store wasn’t prepared and they may think twice before shopping there again. The same is true for buyers looking for the must-have smart phone or hot electronic toy on Christmas Eve.
On the other end of the spectrum, look at the classic holiday we just went through –Thanksgiving. In stores today, you are to likely see mass quantities of marked down products, especially pumpkin pies, which is a common reaction retailers have to having an excess of inventory in their stores.
Let’s look at some of the inventory challenges retailers have during the holidays and best practices to solve them in order to optimize seasonal inventory for maximum profits.
Holiday challenges: Advance ordering & employee turnover
Particularly with seasonal products, retailers are often making buying decisions nine months to a year in advance. Of course, the further out retailers try to forecast consumer trends, the more typical and less predictable those forecasts become. Since demand can vary vastly depending on the year, or even the holiday, historic sales data might be a less precise signal than it would be in the more routine every day categories.
Look in any store during the weeks leading up to a major holiday and you will see a section dedicated to selling products related to the holiday. With a high level of employee turnover in the retail industry, it is often the case that the person who is looking after the seasonal aisle will not have had experience ordering or servicing customers in that specific store for that season.
To address these challenges, retailers need to build and maintain a collaborative relationship with the manufacturers and suppliers.
Manufacturers and suppliers have the insights into consumer trends and how they are responding to particular products as a whole. Combining this insight with retailers’ knowledge of consumer behavior on the store level can not only help retailers optimize their inventories, but also help manufacturers confirm their own forecasting to optimize product production.
Suppliers also benefit from a collaborative relationship with retailers. For example, while 40% of champagne sales occur on New Year’s Eve, that still means 60% of sales occur before that day. Those early sales are an early indicator of where demand may end up on New Year’s Eve. Based on point of sale data from retailers, suppliers will have a good view of how they should stage their inventory at various distribution centers in order to effectively service those specific stores.
A collaborative relationship is the best way to overcome the unique challenges each holiday brings to retailers and manufacturers. By leveraging a collaborative supply chain, retailers can optimize holiday inventories, leading to higher rates of customer satisfaction and increased profits.