As the holiday season approaches, retailers brace themselves for the frenzy that is Black Friday. While this time of year brings joy and excitement for consumers, it poses significant challenges for the supply chain as a whole. Retailers must grapple with the complexities of inventory management and cost analysis to insure a profitable holiday season.
Black Friday, once a single-day shopping extravaganza, has evolved into a weeks-long event marked by discounts and unparalleled consumer demand. This surge in sales, both online and in physical stores, puts immense pressure on the supply chain. Retailers must accurately predict and meet the increased demand, ensuring that shelves are stocked, and online orders are fulfilled promptly. Matthew Debbage, CEO of the Americas and Asia, at Creditsafe, explains that this year's operating costs for the holiday season are expected to increase across the board with these ranked findings:
- Retail space: 41% of brands and retailers said these costs have increased.
- Warehouse space: 35% said these costs have increased.
- Logistics and transportation: 39% said these costs have risen.
- Marketing and advertising: Over half (51%) said marketing and advertising costs have grown.
- Shipping: 52% have seen their shipping costs increase.
- Suppliers: Suppliers are costing more, with 46% seeing this cost rise.
- Technology: 43% have spent more on technology this year.
- Employees: 39% have seen the cost of employees increase.
One key challenge for retailers during the holiday season is the risk of excess or insufficient inventory. Overstocking can lead to costly markdowns, while understocking can result in missed sales opportunities and dissatisfied customers.
"Excess inventory is yet another problem that stands in the way of having a successful 2023 holiday season. As our study found, 78% of brands and retailers still have up to 50% of their stock leftover from the 2022 holiday season. That’s a lot of leftover stock that needs to be sold during this holiday season," says Debbage.
To mitigate these risks, retailers can leverage advanced data analytics and forecasting tools. By analyzing historical sales data and market trends, retailers can make more informed decisions about inventory levels, optimizing stocking strategies and minimizing the impact on their bottom line. "Data is the best way for brands and retailers to plan for the holiday season and it’s certainly key to preventing excess inventory," explains Debbage. "For instance, looking at previous holiday order volumes can show what products were in high demand – selling quickly and at full price – as well as what inventory and how much is leftover from the 2022 holiday season."
Embracing technology is not just expect, it's a crucial component for retailers aiming to streamline their supply chains during the holiday season. Implementing advanced inventory management systems, utilizing robotics and automation in warehouses and optimizing order fulfillment processes can enhance efficiency and reduce the risk of disruptions. Proactivity is the second piece of the puzzle when considering the pitfalls to demand. "Before the pandemic, most CFOs weren’t thinking about how their financial planning and procurement strategy needed to work together. But that has changed now," says Debbage.
Understanding operating costs and the "moving parts" of holiday inventory management, the cost of good and consumer expectation is key. Debbage says pay attention to how much of your total expenses fall into the good costs and bad costs categories and reducing those bad costs as much as you can. The goal, he says, should be to have more good costs that drive maximum profit for your business. One way to do this is to rent out unused retail and warehousing space if you’re not making much use of them. Or if those spaces are sitting idle and unused, then you may want to sell them to get them off your books.
Black Friday and holiday shopping exert considerable pressure on the supply chain, necessitating careful planning and strategic decision-making. Successful preparation and mitigation of risks will not only result in a smoother holiday season but also contribute to long-term customer satisfaction and set a good foundation for next holiday season.