Inventory Management

We’re in the midst of the holiday peak — four more weeks of industrywide frenetic selling activity. But while the sales peak ends at Christmas for most direct retailers, the inventory returns peak is just starting. 

Retailers struggle each holiday season with an inevitable inventory imbalance. Some order too much of one product and not enough of another. The vagaries of the economy, the increasing influence of e-commerce, online marketing and a greater recognition of evolving shopping habits made this past holiday season one of the trickier ones to project. As a result, it's created chaos regarding inventory management.

Many smaller retailers simply don’t believe that improvements in inventory planning will provide enough incremental profit gain for a company its size to justify investing in staff, systems or processes. However, they may be overlooking a crucial piece of the puzzle: how inventory planners help marketing and merchandising grow sales and increase gross margin. 

Listen in as Nick Molina, CEO of My Talking Toddler, discusses how the children's educational products retailer managed its inventory and e-commerce site during the hectic Christmas rush following a TV appearance on NBC's "Today Show."

Many U.S. adults have plans to return gifts they received this holiday — more than 21 percent said it's very likely that they would return holiday gifts they didn't like. Meanwhile, 32 percent said it would be at least somewhat likely. It may be tough to know whether or not a gift that's been given is going to end up in the returns pile, as more than 78 percent of U.S. adults said they have pretended to like a gift they've received even if they didn't like it.

Retailers are in the midst of the holiday peak. While the sales peak ends at Christmas for most, the inventory returns peak is yet to come. This annual phenomenon invariably creates waves, especially if you sell products with typically high return rates (e.g., footwear and apparel).

One of my favorite moments from NEMOA's Fall 2011 directXchange Conference was when Country Curtain's President Phil McAvoy said the following during his keynote speech: “Don’t be a hero at budget times.” His point is that you should already have contingency plans in place so you can respond to the inevitable challenges that arise during the year. Be a hero when it counts — at the end of the year when you meet or exceed your budget.

Every retail company I talk with seems to feel that its inventory challenges are unique. Large cross-channel retailers contend with the variability of demand planning by channel and the complexity of communicating assortment plans between merchandise and inventory planners. Small internet retailers often run out of best-selling products because they don’t have the staff resources to stay on top of their buying needs. Catalogers are forced to plan and analyze product-level demand by offer. B-to-B retailers struggle to have the right amount of inventory by SKU for that unexpected large order.

Holiday plans, merchandise assortments and inventory purchases are pretty well in place by now for most cross-channel retailers. But since many businesses gain such a high percentage of their sales and profits in the fourth quarter — as much as 60 percent — it's never too late to see what additional things can be done to increase sales and customer satisfaction.

Increasing investment in back-end systems is a natural and predictable trend for the maturing internet retail industry. That investment will help push internet sales higher while simultaneously increasing operations and inventory efficiencies, resulting in higher profits.