Retail TouchPoints: Conservative Ordering Makes Inventory Strategy Critical to Avoid Stock Outs This Holiday Season
Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPoints website.
Fearful of cautious consumers this holiday season, retailers may be setting themselves up for failure in the critical Q4 period by keeping inventories too lean. Recent survey data from Retail System Research (RSR) indicates that retailers are not ordering enough merchandise to meet even last season's mediocre level of demand.
With retailers running lean on inventory levels throughout the year, other industry insiders suggest a critical variation between this season's winners and losers could be the merchants who have set up flexible stock options and can respond quickly to shifts in demand.
"RSR is concerned about this holiday season," said Nikki Baird, managing partner, RSR. "Several economists are predicting a rebound for the second half of 2009 (whether it sticks around or not). When you match that with a level of retailer irrationality that always seems to come with the holiday season, you've got a recipe for high stock outs (and disappointed shoppers) along with big discounts on what retailers do have in stock (impacting retailer margins)."
Since inventory management is so closely tied to the customer experience, industry insiders indicate retailers will use preemptive tactics to create and satisfy consumer demand and maximize every sales opportunity, while streamlining backend store operations.
"Monitoring the floor is now more important than ever to optimize the flow of merchandise," said Doron Levy, president, Captus Business Consulting. "At the store level, many chains have begun revamping their backroom processes to make sure product makes it out on the floor in a timely manner."
"We're seeing retailers replenish frequently, retrieve and analyze POS data from stores multiple times during the day to get the earliest possible insight into demand patterns," said John L. Stelzer, director retail industry marketing, Sterling Commerce. "We're seeing retailers manage inventory before it arrives at the DC or the store for supplier drop-ships."
Mr. Stelzer said retailers who insist on more timely accurate order/shipment status information are likely to better manage inventory before it shows up at the DC or store. "Retailers are beginning to manage inventory in the yard to reprioritize shipment unloading based on the items that are needed most downstream," he said.
Mr. Stelzer also said there's indication that endless aisle initiatives are expanding rapidly. "The allure of being able to dramatically expand assortment without having to carry additional on-hand inventory is enticing more and more retailers to enter the direct-to-consumer model with more of their suppliers," he said.
RSR's Baird said there has been an uptick in interest in "save the sale" from either in-store through endless aisle-type capabilities, or online by providing visibility into store inventories, if not outright buy online/pickup in store. "But the impact on safety stock has been slow to manifest, because that is a significant change to both distribution systems and processes, as well as the distribution network as a whole," she said.
Discussion Questions: Are retailers being over-aggressive in reducing inventory levels amid the downturn? What are some well-honed as well as less-used strategies for avoiding stock outs in a lean inventory climate?