Is consumer demand really that unpredictable?
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
According to RSR’s benchmark report on omnichannel order profitability, unpredictable consumer demand is the top business challenge among retail respondents. After much consideration, I would offer that consumer demand isn’t really that unpredictable. Instead, retailers are just really bad at predicting it.
Part of the issue is one of “garbage in” — as in, “garbage in yields garbage out.” There seems to be a lot of garbage in the inputs retailers use to decide what to stock where. First, a lot of them start with last year’s plan, which means the bad assumptions made last year are automatically carried over into this year.
Then there is the level of granularity used. If you’re looking at demand at a category or even sub-category level you’re still going to miss a lot.
Another area where I see retailers ending up with garbage inputs is around estimating missed demand. Remember, what you sold is not “demand.” It’s just what you sold. There could have been plenty more demand out there to be captured, but you were out of stock.
I know that retailers are not good at estimating lost sales — all I have to do is listen to their shock and surprise when they start showing store inventory online. For example, for fashion retailers shipping from store, the impact was immediate. “We had no idea the depth of demand for some of these items” was a phrase I heard over and over again.
When you don’t have granularity — when you aren’t starting from clean inventory data and thus clean demand signals, and thus consistently under-estimate the demand that you’re losing out on — then yeah, I guess it could look to you like consumer demand is just outright unpredictable. That’s especially possible when you add the increased complexity of more channels, more inventory and demand crossing channels, and endless aisle assortments that make managing the granularity of your total assortment ever more difficult.
But the reality is, you must get better at it in order to win at retail. Unpredictable consumer demand is an excuse for bad processes and data — and a lame excuse at that.
- Profitable Customer Engagement: The Unmet Promise – RSR Research
- Is Consumer Demand Really That Unpredictable? – RSR Research
DISCUSSION QUESTIONS: Is consumer demand really unpredictable, or are retailers just bad at it? How had omnichannel made estimations more complex?