Selling ‘Scary’ Before ‘Merry’

Step into any big-box store right now and you'll find an impressive array of battery-powered jack-o-lanterns, "Frozen" costumes and candy sugary enough to warrant the lifetime silent treatment from your childhood dentist.

In a few weeks, bristling electronic turkeys will replace the bristly witches’ brooms, and shortly thereafter, the leaves will fall and faux snow will coat holiday displays. Snowmen will pop up where skeletons hung before, staying there until the year comes to a close with a big ball drop.

While effective inventory management should be a year-round priority, it's particularly important for retailers in the last three months, when holiday cheer brings festive shoppers to stores. Companies have expanded their product offerings for Halloween and Thanksgiving, but their bottom lines will suffer if they make costly inventory management mistakes. Here are the three best ways to manage seasonal inventory:

1. Brew the perfect inventory balance. It's not unusual for a product to sell out in a particular color or size (SKU) in one store while a nearby location has a surplus of that exact item. Imbalanced inventory is a lose-lose situation for retailers hoping to profitably make room for the next holiday's products.

Managing Halloween inventory is even tougher. What sells not only depends on what's trending nationally, but also local preferences. Each year brings new "hot" costumes, making it almost possible for businesses to forecast sales using historical data.

Poor inventory management results in lost revenue and steep markdowns — a double whammy for retailers. Out of stocks drive paying customers towards competitors, while surplus items sit on shelves until they're sold for less profit. Worse yet, it's too late to avoid the costs of imbalance when businesses finally realize the problem.

Interstore inventory balancing using predictive analytics is an increasingly popular way for retailers to get ahead of the imbalance. According to a Gartner report, 70 percent of the most profitable businesses will manage their processes using real-time predictive technology by 2016.

Incorporating all costs associated with the transfer, from logistics to store capacity, demographic diversity to the sizes and colors most likely to sell at a specific location, retail predictive analytics solutions anticipate the necessary transport of an item before the transfer becomes tedious or overwhelmingly expensive.

Most families don't want haunted homes year-round. Consequently, peak season for cotton cobwebs and plastic spiders is only a few short weeks in September and October. Predictive analytics lets retailers clear the bottleneck and sell out seasonal inventory at maximum prices. Now bring on the turkey-patterned tablecloths.

2. Don't assume shoppers will gobble up deals. Retailers offer promotions to bring traffic into their brick-and-mortar stores, believing no one can resist a great deal (or 20 great deals). While bargain prices may win over consumers, retailers that don't effectively frame or execute promotions will find themselves losing revenue.

The problem is retailers often don't effectively coordinate pricing and promotions with ordering and replenishment. Without an integrated solution, they miscalculate the optimal quantity of products to send to each store in anticipation of a promotion.

As a result, retailers must sell at a markdown inventory they could have easily sold at full price, depleting inventory more quickly than necessary and creating an out-of-stock scenario when there's still demand. The consequences are lost profits and unhappy customers.

One strategy for gauging inventory needs is to assess how various media pushes will affect demand. For example, how television ads, Facebook promotions and billboards impact demand for a specific product, all the way down to the store/SKU level.

Retail predictive analytics incorporate demand forecasts, replenishment, current inventory levels, promotional media types, price optimization and product cannibalization to improve return on investment during promotions.

3. Supply Santa's sleigh only when it's cost effective. Retailers have to strike a difficult balance when it comes to shipments. Late or incomplete shipments translate to out-of-stock items, which can ultimately ruin promotions. Early shipments mean higher carrying costs. To prevent the former scenario, retailers will usually add safety stock to their inventory; but safety stock isn't free either, so it's best kept at a minimum. Unfortunately, it's very difficult to calculate the optimal level of safety stock.

The inability to determine optimal safety stock has a ripple effect, making it harder to optimize the supply chain. Investing in additional inventory with hopes of added sales, meanwhile, leads to an endless imbalance of stock and demand levels.

Using predictive analytics allows retailers to better optimize safety stock and restrict on-hand supply to what's needed. Rather than play a guessing game, start leveraging the best predictive data to answer inventory questions.

Jim Malone is the vice president of business development at Retalon, a provider of predictive analytics for the retail industry.