It’s that time of year again! As the weather starts to change and the holidays approach, retailers across the country are preparing for the rush of seasonal shopping.
But along with the excitement of the season comes a unique set of challenges, from managing inventory to dealing with customer demands.
In this article, we’ll look at the biggest challenges retailers face managing seasonal inventory, and the best tips from retail experts on overcoming them.
What is seasonal inventory?
Seasonal inventory refers to products that sell at higher volume during certain times of the year. Demand for these products fluctuates due to weather, events, or holidays.
Seasonal inventory challenges
Some of the challenges presented by seasonal inventory include: dead stock, stockouts, and storage issues.
Dead stock is one of the biggest challenges with seasonal inventory. The term dead stock refers to inventory that you can’t sell. It’s a big loss of revenue for retailers.
It’s especially bad with seasonal inventory. Retailers stockpile products in anticipation of future demand. If they don’t meet demand, they are stuck with excess merchandise that is sometimes unsellable.
For example, a retailer might have a lot of Halloween-themed merchandise left over after October 31. How are they going to get rid of all that stuff?
Dead stock can be dealt with in a few ways; none are ideal.
- Retailers can try to sell the items at a discount, but that usually doesn’t make up for the loss in revenue.
- They can donate the items to charity, but that doesn’t always make sense logistically. Somebody has to deliver it, or somebody has to pick it up.
- Or, they can just throw the items away, which for a business is not a sustainable solution.
Managing seasonal inventory, then, requires accurate demand forecasting, since large amounts of inventory can become obsolete. Also, holding costs can build up if inventory is not sold as anticipated.
The opposite situation, stockouts, is also a problem. Stockouts occur when a product is no longer available for purchase because it has sold out. They cost retailers over $1 trillion each year.
Companies using seasonal inventory build up stock during periods of low demand and store it for periods of high demand. If future demand exceeds the amount of product stockpiled, you can easily run out of stock.
Another area in which seasonal inventory can be a challenge for retailers is storage. Seasonal items take up valuable space in warehouses and stores, and if not managed properly, can lead to cost and handling problems.
The big question for most retailers is how much inventory to store. They must compare the costs of storing additional seasonal inventory against the cost of satisfying fluctuations in demand.
Examples of seasonal inventory
Most businesses have inventory demand for which fluctuates with the seasons; it can be anything from clothing to home goods and beyond. Here are some common types of seasonal inventory:
Your first thought about seasonal inventory was likely holiday products. Christmas, Halloween, and Labor Day weekend are all examples of holiday inventory. They all have specific items that consumers only buy during the holiday season.
For example, the Christmas season usually includes a lot of lights, decorations, prepared foods, paper plates, and cutlery. To increase sales, you can run promotions to target customers leading up to Christmas.
Summer or winter apparel
For apparel merchants, clothing for summer or winter is a basic example of seasonal inventory.
Depending on where you operate, summer may be your busiest season due to warmer weather and vacations. In the summer, people tend to buy more swimsuits, shorts, and tank tops. Cold winter weather may cause sales to drop, but people will still need to buy coats, hats, and gloves.
Event inventory relates to specific events such as the Super Bowl or the Fourth of July. It can include anything from kitchen supplies to decorations to clothing items like hats and t-shirts, to pint glasses and flags.
Seasonal inventory management methods
- Just-in-time inventory (JIT)
- ABC analysis
- Economic order quantity (EOQ)
Let’s look at some of the various inventory management mtehods available for handling seasonal inventory.
Just-in-time inventory (JIT)
Just-in-time inventory (JIT) is a system where you only receive inventory as needed in small quantities. It’s a way to reduce holding costs and dead stock.
There are some downsides to using JIT for seasonal inventory. It’s ideal for businesses with stable demand and predictable supply chains, but if you order from a supplier and they don’t have inventory available, or have long lead times, you’ll go out of stock. That’s why retailers normally order seasonal inventory ahead of time.
However, JIT is good for retailers with a good forecasting system in place. If you can predict demand accurately, you can reduce costs and improve efficiency with JIT.
First in, first Out (FIFO) is a popular inventory valuation method. Using FIFO, the first items you receive are the first to be sold. FIFO provides accurate inventory levels because it considers everything you carry in stock, not just recently received items.
FIFO is ideal for retailers selling perishable products or seasonal products like clothing. However, it can be difficult to implement if you have multiple SKUs or products with different shelf lives.
Last in, first out (LIFO) assumes the stock you acquired last is sold first.
If you pay a premium for stock from a supplier due to seasonal demand, LIFO helps recover the higher cost by moving that inventory first. LIFO is ideal if you sell non-perishable products, because older stock can remain in your warehouse for longer.
The ABC analysis model prioritizes products based on their value by categorizing inventory into three buckets: A, B, C.
- A – high-value products that generate the most profits.
- B – mid-tier products that have average sales velocity.
- C – products that sell quickly but don’t generate much profit.
Running an ABC analysis can help you save money by prioritizing inventory purchases and selling off obsolete inventory before it becomes worthless. It can also help you keep track of your most important assets and prevent them from becoming obsolescent during the season.
Economic order quantity (EOQ)
EOQ helps you identify the optimal quantity of inventory to order. It takes into account three factors:
- Ordering cost
- Holding cost
It’s one of the hardest models to use for the average retailer. It’s recommended that you use EOQ only if you have an experienced inventory manager who has used JIT and EOQ before. Done well, using EOQ can reduce your holding expenses.
Tips to improve seasonal inventory management
With seasonal inventory, your sales period is limited, and once the season is over, leftovers can be difficult to move.
Let’s look at a few ways to improve seasonal inventory management, so you can meet demand and make more sales.
- Leverage historical data for forecasting
- Categorize seasonal inventory
- Bundle complementary products
- Discount slow-moving inventory
- Consider international marketing
- Closely monitor inventory metrics
- Streamline fulfillment
1. Leverage historical data for forecasting
One of the best ways to improve forecasting is by looking at past sales patterns. That way, you can better understand what customers are likely to buy and when they’ll buy it. You can use this information to adjust inventory levels accordingly.
Retailers use inventory management software to collect and analyze data for forecasting. Scott Cozak, a Managing Partner at Sproutward, an ecommerce and analytics consultancy, suggests that retailers must use a “mix of historical sales patterns and upcoming seasonal trends” to get forecasting right. It should also be done at the category and product level.
Two methods you can use to plan seasonal demand include:
- Sales forecasting. Use historical revenue numbers to predict future sales. For example, if you compare summer sales over the past three years, you may find that they average 25% more sales volume than you had at the beginning of the year. It’s safe to assume that it’ll happen again this year.
- Seasonal trends. Some products are more popular than others throughout the year. Predict seasonal shifts by using Google Trends to show fluctuations in interest. You can see in the graph below that searches for “bathing suits” peak around May-June when people are gearing up for the summer.
By forecasting seasonal demand, you’ll understand exactly how much product to have in stock during those months. Using data from your inventory management system, you can improve your chances of accurately forecasting demand, avoiding overstocking, and reducing stockouts.
Demand planning goes further by considering other factors that could impact demand, such as seasonality, consumer taste trends, and even events like a global pandemic. This information is essential for meeting your customer demand while minimizing excess inventory.Ann McFerran, CEO of Glamnetic
2. Run a presale
One way to evaluate the sales potential of seasonal items is by running presales. It’s a tactic that Meredith Dew, owner of clothing brand Wild Melon, uses to gauge seasonal trends.
“I find the biggest challenge with seasonal inventory is ensuring you have enough for everyone who wants it, but not getting stuck with anything after the holiday is over,” she explains. “Once the merchandise is out of season it can be difficult to move without steep discounts.
“One way I manage seasonal inventory is by offering presales. It allows me to have cash flow before inventing in the inventory and shows me what the customers are most eager to purchase. Then, I tailor my seasonal stock inventory to match what was bought in the presale.”
3. Bundle complementary products
Bundling complementary products is an effective way to improve seasonal inventory management. According to a Harvard Business School study, product bundling can be an effective tool for increasing sales.
The study found that when gaming brand Nintendo bundled two products together, it sold over 100,000 units and produced more than one million dollars in video game sales.
Ideally, you want to close your season with bundled sales. These promotions can move inventory efficiently, reducing storage costs and unsellable products.
Christmas decorations are a great example of this. Items like wrapping paper and ornaments are useless after December 26th, but when heavily discounted as a bundle, people are likely to stock up for next year’s holiday needs.
4. Discount slow-moving inventory
Inventory that moves slowly drains a company’s resources. Besides tying up working capital, it takes up valuable storage space and can lead to stockouts.
If inventory is slow-moving, discounting can help, but it must be used judiciously. Done incorrectly, discounting can erode margins and damage your brand.
One way to improve seasonal inventory management is to offer discounts or promotions on slower-selling items to clear out excess inventory before it becomes obsolete.Brian Lim, CEO and founder of iHeartRaves
5. Consider international markets
Another way to manage seasonal inventory is by selling products internationally. The seasons in the Northern Hemisphere are opposite those in the Southern Hemisphere. In Australia, winter begins in June, while US consumers are airing out their beach chairs and stocking up on bathing suits.
Retailers can take advantage of these seasonality patterns. Say you’re a sports supplier in the US clearing out skis and snowboards around April. Rather than discount everything and lose out on profit, you can start promoting those products to customers in Australia, New Zealand, or Argentina.
When selling internationally, you need to consider shipping costs, customs regulations, and language barriers. However, if you research and plan ahead, you can successfully sell in world markets.
6. Closely monitor inventory metrics
Staying on top of inventory levels is critical for managing seasonal inventory. This includes:
- Inventory turnover. Shows how fast you restock products compared to how fast they sell. Low inventory turnover means you have too much stock, which means low sales.
- Days to Sell Inventory (DSI). Measures the average number of days it takes to sell off inventory. A high DSI suggests that either you’re not managing inventory properly, or that your inventory is hard to sell.
- Average inventory levels. Estimates the number of a units available in stock over a specific period. You want your average inventory levels to line up with average seasonal sales.
- Total stockouts. Several stockouts during a season indicate poor forecasting and an increased ordering requirement.
Steven Pogson, founder of ecommerce growth agency FirstPier, recommends carefully monitoring your inventory levels throughout the year to plan for seasonal demand. “You want to maintain just enough inventory to satisfy demand, but not so much that you’ll have a ton of leftovers at the end of the season.”
He adds, “Don’t be concerned about low inventory levels, especially if you can swiftly restock your products. Watch for any unexpected drops in your daily sales and inventory levels. The fact that these are items your devoted clients have learned to expect from you will also assist you to identify your profitable regulars that you must continue selling alongside your seasonal products.”
Pogson recommends that retailers invest in automation to manage seasonal demand. “It’s easy to see your stock levels every day thanks to a reliable POS system. It automatically records every sale and updates inventory data in real time.”
7. Streamline fulfillment
Fulfillment refers to assembling and shipping a customer’s order. Retailers make fulfillment a priority because it impacts customer satisfaction and profits overall. If you can’t fulfill orders effectively, you’ll struggle to sell any products.
A few innovative ways retailers can streamline fulfillment include:
- BOPIS (Buy Online, Pick Up In Store). Fifty percent of shoppers have used BOPIS before. It’s become a popular option for many folks, especially during the holiday season. Buying online and picking up in-store saves people time and money versus ordering by mail.
- Local pick up. A good option for businesses that have multiple locations. Customers can order items online and then pick them up at a curbside location that is convenient for them.
- Local delivery. A good method for businesses located in rural areas or with products that are difficult to ship. Customers can order items online and then have them delivered to their doorstep by a member of your team.
Our retail store removes a lot of design restrictions around larger items. With in-store pickup, we can design and sell a series of products that don’t need to ship to California, which helps us be more economical with our order fulfillment for bigger, higher-price-point items.Dustin Kroft, Principal and Lead Designer, Kroft
Manage your seasonal inventory more effectively
Seasonal inventory can be tricky to manage. If you order too much inventory ahead of time, you’re stuck with unsellable products year-round. If you don’t order enough product, you’ll have stockouts and disappointed customers.
By following the tips above, you can create a system for your store that helps you meet customer demand and earn more sales throughout peak seasons.
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Article reference: https://www.shopify.com/au/retail/seasonal-inventory