Following the optimism of non-essential high street shops reopening in mid-June, pessimism remains about near-term sales. The CBI’s monthly Distributive Trades Survey shows the vast majority of retailers expect sales to be lower than July 2019, with 62% believing lack of customer demand is the biggest operational challenge they are facing.
These should be more positive times for retail. The Government is striving to drive the economy forward and relaxing restrictions around travel and socialising, which should create consumer appetite for shopping. However, with uncertainty remaining, it’s crucial that retailers are increasingly decisive when it comes to stock management.
It’s understandable that many retailers will be reluctant to start thinking again about moving stock and replenishing stores. Afterall, they’ve just invested much time, hard work and money in COVID-19 safety and social distancing measures for reopening and stocking stores for summer. Surely now is the time to settle and wait for consumers to start spending, rather than changing what’s on the floor and in warehouses? History tells us otherwise and that ineffective stock inventory management just doesn’t dilute margins, it can cost billions.
An expensive issue
Analysis by Advanced Supply Chain Group (ASCG) showed that prior to the UK outbreak of COVID-19, stock management issues cost retailers £1.6billion. There were 10 retailer profit warnings from June 2018 – January 2020 quoting stock inventory management issues, which saw an average of 22% wiped off the market value of each retailer.
Significant stock management issues quoted by retailers included poor stock availability, leading to lost sales and margin dilution, as well as high levels of stock surpluses resulting in heavy discounting of products and losses incurred through aged and out-dated stock.
The analysis highlighted that profit warnings quoting stock surplus issues saw higher average losses than those associated with poor stock availability. These losses could rise beyond £66billion this year because of the impacts of weak customer demand and a slowdown in consumer spending on non-perishables.
Managing the issue
Retailers can tackle potential losses by addressing stock issues now and better preparing for future sales periods. If goods aren’t selling, they must avoid stockpiling in the hope that trading conditions can swiftly change. Seasonal stock can quickly depreciate in value, with depreciation accelerating during periods of low demand. Furthermore, holding slow moving stock makes it more challenging and inefficient to accommodate new goods. This prolongs the impact of poor stock management, as issues start to affect the financial performance of next season’s lines.
It’s increasingly important to take a longer-term view of stock and plan inventories over the next 12 months. This helps put any current sales issues into context and enables contingency planning to better inform operational decisions, both during current and future trading periods. For example, data can be used to determine the optimal time to discount stock for clearance purposes to maximise profitability and avoid losses eroding margins of new lines.
It’s possible to have a real-time view of stock and to utilise models that determine variances affecting the future flow of goods. This can help retailers to tie-up less cash in stock and provide them with a more agile supply chain that can be flexed in times of uncertainty. It means they can more rapidly, and cost-effectively, change the stock options on sale, and reduce the risks of trying new and different items to engage consumers and encourage purchasing.
People often think these stock management issues are just a problem for the fashion sector but as e-commerce has become the main sales focus for most retailers, we’re seeing the same across homeware, beauty, gardening, outdoor and fitness. It is harder than ever to manage a stock pool across multiple routes to market, while enhancing availability and maximising margins. Retailers need a progressive, agile supply chain partner aligned to the consumer and also able to provide maximum stock visibility to ensure their goods are assets and not expensive liabilities.
Claire Webb is Managing Director of Advanced Supply Chain Group and has spent over 13 years working in retail.