The retail landscape is chock-full of complexity.
There’s the complex web of partners, manufacturers, producers and logistics providers who are critical to the flow of goods and services. The buyers, with their dynamic behaviors and unique tastes and preferences. And then there are the sales and delivery channels, from the traditional brick-and-mortar, to ecommerce, buy-online pick-up in-store, curbside pick-up, lay away and others.
But in 2022, one piece of this complex puzzle proved to be more challenging than the rest… inventory.
The rise of the inventory bullwhip
After a year of stock-outs and backorders, manufacturers and retailers ramped up production and placed bigger bets on inventory for 2022. But sky-high inflation, price hikes and political unrest quickly tossed global markets into disarray and consumers tightened their budgets as a result. Excess stock ate into profit margins, and even the biggest brands struggled to remedy an inventory mix that no longer matched the market or the needs of their consumers.
Even in the final months of the year retailers were still struggling to get their product mix right – preparing for weaker sales on Black Friday, only to be surprised by resilient consumers who spent an estimated $9.12 online alone. While this unexpected surge likely helped some retailers offload excess stock, retail sales still saw their biggest decrease in 11 months in November, proving just how difficult it can be to accurately predict consumer behaviors in a dynamic landscape.
Excess inventory is so last season
But inventory planning doesn’t need to be such a headache for retailers. With the right data and the right tools in place to harness the power of that data, planners can build flexible, forward-looking inventory plans that can be easily adjusted to meet shifts in demand, capture revenue, avoid excess costs and protect margins.
As retailers close out a tumultuous year and finalize their inventory plans for 2023, the following considerations should be top-of-mind.
Stop reacting to demand, start shaping it. Instead of over-ordering or making inventory decisions based on the past 12-24 months, planners need to identify ways to shape the behaviors they want to see. Data-driven merchandise planning is key. With insight into point-of-sale data, social media trends, production costs and market signals, retailers can identify the right product mix, price and channel to drive margin dollars. That might mean bundling a set of SKUs to increase profit on a promotion, timing a social campaign to bolster demand around a certain occasion, or launching a major promotional event before a peak shopping season to boost controlled demand – a strategy Amazon has successfully deployed via Prime Day.
See where your inventory is – anytime, anywhere. The rise of omnichannel retail and the continued globalization of retail supply chains has put a new spotlight on the need for visibility. Seeing how an unplanned disruption might impact the flow of goods across your supply chain is a must in today’s dynamic environment. Retailers can gain end-to-end visibility by leveraging digital twin capabilities, like the Supply Chain Twin solution Google Cloud introduced last year. A virtual copy of a physical supply chain, a digital twin solution combines real-time data from your supply chain ecosystem, with external signals, like weather patterns, to help retailers identify and plan for potential inventory issues.
Forecast quickly and confidently. Inventory struggles have made forecast accuracy increasingly difficult to achieve, especially for retailers who rely on historical data alone. With advanced intelligence capabilities – like the integrations offered by Anaplan and Google Cloud– retailers can build more accurate demand forecasts by connecting existing company data with real-time insights from external sources. CFOs can identify the levers that can be pulled to offset inventory costs, mitigate additional risk and reduce margin pressures in future quarters. A real-time, data-driven approach to forecasting has been a boon for SEPHORA’s finance team. As the beauty retailer’s Director of Finance says, “We are now able to run multiple scenarios and compare them in a minute. We know that our forecasting is always updated and accurate since all our data points are connected.”
Inventory hurdles have rocked retailers over the past year, but with the right tools and insights, planners can make strategic, proactive decisions today to drive margin dollars, shape ideal buying behaviors and alleviate inventory headaches in 2023 and beyond.