Photo: RetailWire
Are retailers carrying enough inventory for Christmas?
Retail sales in September and October achieved their highest month-to-month gains since early 2014 and some see that improvement as a sign that this year’s holiday selling season may exceed expectations. While it would be hard to imagine anyone being unhappy should this scenario come to pass, might some retailers come up short because they carried too little inventory to meet increased demand?
A Wall Street Journal article points out that retailers came into this year’s holiday selling season cautious about carrying too much inventory. Companies hope to avoid having to resort to profit-cutting discounts to move merchandise. Keeping a tight lid on inventories in the third quarter helped some to improve profitability even as sales remain soft.
Another Journal article quoted Kohl’s CEO Kevin Mansell as saying he felt the chain had “momentum coming out of October.” Investments in inventory management, he said, have positioned the company to execute for both the near and longer terms.
Retailers have grappled with the light versus right inventory question for years. Many, burned by carrying excess inventories during past holidays, are determined to not repeat mistakes of the past.
But is it possible that retailers may find themselves with too little inventory on popular items this holiday season? Will out-of-stocks cause consumers to take their business elsewhere, perhaps never to return?
Toys “R” Us confronted this issue during last year’s holiday season. In an interview last December with the Journal, CEO David Brandon said, “If a customer can’t find what they’re looking for at your store, 60 percent of the time they will shop somewhere else and never come back.”
- Lighter Inventory Boosts Retailers, for Now – The Wall Street Journal (sub. required)
- Rising Wages, Tighter Inventory Spark Retail Holiday Optimism – The Wall Street Journal (sub. required)
- Struggling Toys ‘R’ Us Tries Fuller Stores – The Wall Street Journal (sub. required)
- Are out-of-stocks driving shoppers online? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: How concerned are you that retailers may not be carrying enough inventory for the holiday selling season? What are the keys for retailers looking to properly manage inventory levels for the holidays and beyond?
Poll
BrainTrust
Tom Redd
Global Vice President, Strategic Communications, SAP Global Retail Business Unit
Dick Seesel
Principal, Retailing In Focus LLC
If you had posed this a month ago I would have said yes. With the shocking election results still reverberating around the world, I think retail could be in for a rockier holiday than anyone anticipated.
This is going to be a tricky holiday for retailers. After being buffeted by declining sales during the Great Recession, and with many consumers still feeling its effects, retailers are right to be cautious about inventory. Target has always had a problem with keeping featured items in-stock, even during non-holiday periods. Retailers need to constantly analyze consumer trends, potential demand and current shopping data. Predicting inventory needs is one of the toughest challenges facing retailers today.
Excellent point Max concerning out-of-stock featured items. This frustration can turn to retaliation as consumers feel duped by advertising. Programs that make good on an offer can hold retailer brand equity.
This holiday season we are seeing more and more retailers tuning their supply chains so that they have just the right amount of inventory. So far many have reported that they are on track across all channels. The trick this year will be determining what hits the hottest trend — this is always tough in fashion. Toys are a bit easier. I am sticking with the confident retailers that I know — the inventory will be there, in the store or at the shopper’s door. The retailers will deliver in 2016.
I don’t blame retailers for being cautious about holiday 2016. They were burned last year by excess seasonal inventory that took most of the first quarter to work through. In addition, there was nothing in the sales numbers during the first half of 2016 (when plans are made and orders placed) to point toward being overly aggressive.
Will there be pockets of shortages? Yes, especially among those stores who overreacted to last year’s poor cold-weather sales instead of ordering against a three-year average. But stores need to learn the lesson of “sell what you own” during the post-Thanksgiving period: If one key item sells out, sell something else in your inventory.
The bows on boxes beneath the boughs of Christmas trees will be abundant. BUT in the turmoil leading up to the January 20th inauguration and given the increasing importance of gift cards (for omnichannel purchases), “stuff” will need extra effort if it is to fly off the shelves. Communicating product value at the point of selection is key.
Of course, this question is nothing new. We ask ourselves this every holiday season. I feel that demand forecasting has finally come of age for retailers and CPG brands. These organizations can now leverage myriad external forces like social chatter, news, local events, weather, etc. and see how they’re potentially affecting demand on a by-store and even by-SKU basis. Merchants need to take the gut feel out of the equation and use the tools available to them to make proper allocation decisions.
Although the fourth quarter may be the toughest one to forecast, tools are better than ever. Add in the uphill re-balancing of supply chain inventory that has been going on for the last few years and it is easy to see why most retailers are enjoying increasingly rapid turns.
Shoppers are never happy when they miss out on that special gift, advertised or not. Retailers have a new solution for this, but it is also the new competition to in-store sales. Direct to consumer fulfillment can be initiated from anywhere.
Out-of-stock in the store? Ship it in two days. But don’t let the shopper place the order somewhere else. Make it easier to do it through your digital commerce. And don’t sell that last one. Keep it in the store for the tactile sell.
That is the basic holiday retail challenge: understand customer demand given an array of dynamics factors and be prepared to meet that demand with enough stock and service (in all forms). It’s difficult for retailers to match supply to demand, but the solutions are available to help this process. The use of advanced planning, supply chain and forecasting systems helps them get closer to the solution.
I also think retailers need to coordinate the marketing and merchandising plans in order to align on customer expectations. A featured, advertised product requires absolute on-shelf availability, so don’t disappoint or you won’t be forgiven soon. Coordination goes a long way.
So how about this for a general statement: I expect smart retailers to meet demand and do just fine and bad retailers to not recognize the signals and to do poorly, and in post-holiday analysis to blame failure on UPS, the docks, consumers, politics, weather, etc.
Well that just about caps it all. Well said.
My practice has me in the mall 1-3 times a week. The whole point is watching how inventories change and evolve with time, how they sync (or not) with the season and the competition. Right now, retailers are all over the map. Some are incredibly disciplined and minimally promotional. Others are clearly out of control and deeply promotional…again…still.
It’s an expansive subject, but one perspective is to create and manage scarcity on novelty, proprietary product. Sell out of something the week before Christmas versus clearing it in February. Convert to forward-season, full margin product in an appropriate manner. It’s a delicate balancing act, but Fear Of Selling Out can easily mean overbuying and then price and margin deterioration. Secede from the Race To The Bottom.
At our clients, money seems tighter this year and being efficient with inventory is a key objective. Combine that with a predicted higher degree of eComm sales and omni programs, such as Buy Online Pickup in Stores, and it would reason that less inventory is likely to seen at store level.