If you own a retail business, you’re probably still adapting to the changes that 2020 brought. Whether dealing with mandated closures or foot traffic limitations, retailers have had to pivot to meet the requirements of the new marketplace.
Many stores stayed afloat by taking sales online and offering delivery and curbside pickup. A June 2020 eMarketer report projected that e-commerce sales would rise 18% for the year — but it also guessed that the increase wouldn’t be enough to absorb the losses that the sector incurred.
Retail inventory needs have changed. Jamie Hickey, principal of the Philadelphia-based office furniture retailer Xotive Facility Solutions, saw a shift in what his customers were buying. His business has two divisions: large cubicle and conference room furniture installations, which are housed in his company’s warehouse space; and smaller, grab-and-go furnishings and supplies that are in its brick-and-mortar storefront.
“When everything shut down, our inventory needs have changed dramatically,” Hickey says. “Large installations stopped because organizations were closed, but we saw an increase in demand for home office items, like chairs.”
Hickey and his team use a cloud-based inventory management platform to determine order quantities.
“We used to order products by using past history to see annual trends and spending habits,” he says. “But 2020 wasn’t average.”
Though the past wasn’t a good predictor for 2020, sales analytics from during the COVID-19 pandemic can help retailers plan for 2021. Using a retail inventory method that reviews smaller spans of time and adjusts purchasing to match current consumer behavior can help forecast demand.
Daily and weekly sales numbers will be more important in 2021, as they more accurately reflect demand. Getting input from customers and sales teams can also help forecast demand. For example, you could track inquiries received via your website and talk to your associates about the products that customers are asking for. On-the-floor information can supplement your sales numbers to provide a greater picture of what you should be stocking.
Using an Inventory Management System
Retailers can’t sell items that aren’t available, and customers will quickly become frustrated if they receive out-of-stock emails after making a purchase. Having technology in place to help with forecasting can help businesses react more quickly and prevent lost sales. Software programs can analyze inventory fluctuations and project estimates to determine the right number of goods and supplies to maintain.
Orders placed online and picked up in-store increased by 208% between April 2019 and April 2020, Adobe Analytics reported in May 2020. Hickey’s analytics prompted him to cut Xotive’s in-store stock by 54% for 2021.
“We had placed orders in January of 2020, before the pandemic hit,” he says. “We are looking at our numbers and see [that] we have stock that we haven’t been able to sell. We are cutting inventory to stay even and not hold on to product that is not selling.”
Inventory software programs also have features that can help businesses operate, such as low-inventory alerts and automatic restocking options. Tools that sync real-time inventory numbers with online and brick-and-mortar sales will help create a better shopping experience for customers.
Identifying Critical Stock
Even with the best planning, you won’t have full control over order fulfillment. To keep your cash flow healthy, identify your critical products and prioritize ordering them to maintain your inventory levels.
Go through your inventory and assign items an ABC classification: A for the most critical items, B for the next level of products and products that are suitable substitutes for A products, and C for low-demand items that you can order when you have available capital.
Some inventory management systems do this automatically by tracking demand. As your customers’ needs change, your critical stock might change, too. It happened to Hickey.
“A lot of companies were coming to us asking us to set up home offices for their employees, who were working remotely,” he says. “We ran out of task chairs and monitor stands and had to order more.”
Understanding Your Supply Chain
Another planning strategy for 2021 involves accounting for your supply chain. The pandemic strained some manufacturers’ ability to deliver stock, but others had systems in place and were ready to respond to demand.
Having a contingency plan can help. Establish relationships with alternate suppliers before you have an inventory problem, or make plans to acquire backup products if one of your most popular items becomes unavailable.
Communicating with suppliers more often can help you anticipate any changes that could disrupt your business. A good inventory software tool will include the ability to dynamically track supplier lead times, which can help you adjust your stock alerts and account for delays.
“We have had to build relationships with new vendors since a lot of our normal partners had to shut down or took too long to ship,” Hickey says. “Lead times were longer than normal. Thankfully, our customers understood — it was happening to everyone.”
Rethinking Your Retail Space
Given the reduction in foot traffic and a shift toward contract-free delivery, retailers are rethinking the square footage of their physical storefronts. Stores in high-rent areas that can downsize and house some warehouse operations elsewhere can increase efficiency and see some cost savings.
Some stores with multiple locations are turning to a so-called dark store model, transitioning brick-and-mortar storefronts to fulfillment centers. They’re removing displays and checkouts and maximizing the space for online orders.
To make capital improvements, retailers can consider small business loans for retail, which can help maximize the return on their investments in warehouse space and retail store locations.
If there’s any lesson to be learned from 2020, it’s the importance of being flexible. Retailers need to adopt the Goldilocks retail inventory method — not too much, but not too little. Just right.
“The greatest lesson we learned is that you can’t always rely on trends,” Hickey says. “But we’re in an unprecedented time. When things calm down, we hope we can return to learning from the past.”