Over the past few months, we’ve seen how the supply and demand cycle can be vicious. Last fall, with supply chain bottlenecks at our nation’s ports, there was concern that retailers wouldn’t have enough products in their inventory to meet consumer demand during the holiday season.
Today, that situation is nearly flipped on its head. January, overall, was a slow month in retail. Pandemic-related government assistance and benefits stopped, inflation skyrocketed and people stopped spending as much, leaving some retailers with too much inventory on hand.
These volatile swings can make it difficult to plan and manage the amount of inventory retailers and third-party ecommerce sellers should carry. Here are trends to keep in mind.
If you are in a financial position to do so, you can optimize your inventory by placing products in distribution centers within key geographic markets, so that you can expedite shipping more economically. However, at the very least, there are tools and solutions that are made for the everyday seller that allow you to plan inventory levels to maximize your input/output. It’s important to make use of all these tools to get a holistic picture of your own supply chain.
But something to keep in mind: don’t fall in love with seasonal numbers. There are external factors that can affect these numbers, so it may completely change what happens next. For instance, when the government was artificially pumping money into the marketplace in 2021, the numbers looked really good. But if you planned based on that for 2022, you are likely to be hurt by this, as we see Q1’s inflation causing conservative consumer spending at this time.
Aligning your supply chain planning / inventory management with retailers’ needs could come down to lead time. That’s why it’s important to buffer your lead time to make sure you are giving yourself the time to get your inventory in place. With costs for materials going up, factory capacities and personnel stretched, and hold ups still in the ports, expecting products to come in within 3-4 months is no longer feasible.
With the immediate need to fill inventory now passed, retailers have a good amount of stock. This means they are going back to their old ways: being strategic, opportunistic, going with brands based on sales and trends—in other words, being highly selective.
For the first time, retail stores with their own ecommerce sites are also gaining market share over pure ecommerce channels. They have learned how to use their stores, warehouses and distribution channels to compete effectively over ecommerce.
This means that being omnichannel is more important than ever. Ideally you should look to sell products on Amazon, eBay, Walmart and other ecommerce sites, but also through your own website. This is very challenging to master, but it is the way of the future.
Planning and managing your retail inventory levels takes a completely different mindset, depending on which channel you are selling through. For instance, on Amazon, you never want to under-project, as being out of stock means you lose your positioning in the marketplace and this makes it very challenging to catch up.
In retail, it’s okay to plan conservatively and possibly even run out of stock, which can drive up demand. This just gives the retailer an opportunity to bring the product back in a bigger way.
The most important thing sellers can do is thoroughly research how their customer wants to shop. This can be further broken down by product category, by geography, by gender, etc.
Understanding the customer well allows sellers to understand the potential for each of the channels those shoppers will use to buy products.
But the type of product you are selling can make a difference too. Hard goods (molds) are going to fare better currently; whereas if fabrics need to be utilized in the final product, this is where some of the biggest challenges and delays are found right now.
Even with much that is still uncertain in the marketplace, what has become clear is that the need for planning, buyer segmentation and omnichannel positioning will be more important than ever this coming year.
If you need help or further advice for your retail inventory management, feel free to contact us today.
Joe is co-founder and co-owner of Riverbend Consulting, where he manages the sales and advertising teams. Joe also heads up the brand partnership and referral divisions. He has founded and run successful businesses in multiple industries including e-commerce and wholesale/manufacturing.
Joe loves spending time with his wife and kids. He can be found playing catch with his boys and even drawing princess pictures with his daughter!