Holiday Inventory - Wading Through the Hype to Set Real Expectations

The effective management of promotions is a critical part of the retail arsenal

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Waltham, MA — The holiday retail season is in full swing: Thanksgiving and Hanukkah have come and gone, as have Black Friday and Cyber Monday. But Christmas, Kwanzaa and New Year's Day are just around the corner. Like the greeting card industry, the retail industry has mastered the art of creating promotional hype around holidays designed to urge consumers to open their wallets.

The effective management of these promotions is a critical part of the retail arsenal. Contrary to consumer perception, holiday sales are less about discounting excess inventory and are usually the result of highly planned and separately forecasted events involving the retailers and their key suppliers.

Since 2008, we have seen retail inventory decline as the industry adjusts to a more modest level of consumer spending. This has been achieved in a number of ways:

  • Improved planning and selling through collaboration between retailers and OEM suppliers.
  • Reduction in the range of brands per product supported by many retailers.
  • Use of e-commerce channels to supplement consumer choices rather than in-store inventory.
  • Use of postponement, near-shore manufacturing and improved planning techniques to reduce inventory.

Such a reduction in inventory leaves open the possibility of shortages where demand increases, but we have yet to experience this level of consumer demand.

Holiday and promotional inventory is typically managed separately from "normal" season inventory. Separating these promotional peaks has a number of benefits, such as helping to better understand every day demand cycles and enabling a higher impact for promotional products by concentrating retailer and OEM efforts on a narrower range of SKUs.

Planning for Black Friday promotions typically starts in early summer with the identification of a range of SKUs and high-level volume ranges. As the actual promotion date gets closer, these volume ranges become firm and the focus shifts from planning to execution. Agreements on communication and visibility are critical to the success of these promotions.

As retailers battle for the attention — and dollars — of consumers, there are a number of additional factors to consider:

  • Retailers are extending promotional periods to capture available spend earlier — many Black Friday offers were available during the entire week this year.
  • Apple, Amazon and GameStop were among a number of retailers this year to use their online presence to extend Black Friday and Cyber Monday internationally.
  • More retailers are using promotions to drive traffic on a regular basis outside of traditional holiday periods.

It is time to move away from traditional methods of inventory planning, which tend to leave retailers overstocked during cycles of low consumer demand. By keeping a critical eye on replenishment cycles, retailers and manufacturers can satisfy demand — before, during and after holiday peaks — and reduce the likelihood of excess inventory sitting idle on warehouse shelves.

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