The Retail Industry: The other Four Questions
By Jim Lewis, CEO Enhanced Retail Solutions LLC
It is hard to believe that a good portion of 2021 is already behind us. Of course, that depends on what seasonal sales curve you live your life by. Around this time last year many chains that closed for Covid started to slowly reopen. Those retailers and their suppliers can learn a lot about how the business decisions they made during that time have played out. During “normal” times a year over year comparison is a sold KPI. However, it was not a “normal” year so do we really care what happened last year? Shouldn’t we just focus on what is happening right now? Before you dismiss last year completely, reflect on how you operated and planned the business a year ago and what the results were. Here are 4 questions I think are worth asking:
How good were the predictions you made? Forecasting has not been easy the past few months. What assumptions did you make that came to pass? Did you scale back inventory or expand it? Understanding if the model you used was effective provides a roadmap for when extraordinary circumstances happen again. Besides tracking actual sales against your estimates, jot down a list of the parameters you used and check off the ones that proved true.
Does your Supply match Demand? The fragility in the supply chain is not an imagined thing and we are all about to pay more for just about everything because of it. Besides delays and the increase costs there are other important factors to think about. Time is an important parameter in planning and even more critical now. By the time inventory arrives will consumers still want it? While we believe in flowing goods to meet demand when needed, a disrupted supply chain may not allow that. How do we protect our business? Carry more inventory than normal? Build it up overseas and keep it there until needed? Reduce the number of assortment items and focus? The answers are specific to your business. Several retailers launched new private brands. How is the consumer reacting? Here are some demand planning solutions that may help you.
What story is your POS data telling you? Everyone is watching their business very closely, but you must get into the details. You need both a macro and micro view to fully understand where the opportunities and liabilities are. An analogy I like about flying a small airplane in a storm fits well. If a pilot cannot see out of the windows, they must solely rely on the instrumentation to keep the plane steady. Same is true with retail right now. Watch POS every week- by SKU, by Store. Check out of stocks, calculate lost sales, update models based on sales trends, and look at the online vs brick and mortar ratio. There were a lot of store closings, so keep that in mind. We have a plethora of POS reports that can help. Retailers, you have your hands full so look to your suppliers for help or encourage VMI (Vendor Managed Inventory) programs. Finally look at your ownership in terms of status. How much is active/good, discontinued, or slow selling and what action needs to be taken to improve your inventory health?
What is the competition doing? Competition shop not just online but in physical stores. A lot has changed for many retailers- product category expansions and retractions, pricing, and delivery options. There are new private brands- will they have an impact on your product? Several chains that went bankrupt or circling the drain are reinventing themselves. See if the consumer is reacting to any of it. It is a good time to build an old-fashioned grid (there’s one in our Retail Primer) listing your competitors, their products, pricing, and other important values and compare. Do not forget to look for white space.
Like many companies during the pandemic, we took the opportunity to strengthen many of our core skills and operations. One area is security policy. I am not talking about store theft; I am talking about how to protect the business on many fronts. There is a section on how to operate during a global crisis which was written over a decade ago. Most of it was accurate- including wearing masks and ensuring better communication between management and employees (mobile phones had just been introduced). We have updated it based on our real experience so that if it happens again, we are better prepared. Same thing applies to planning- document what you learned- what worked and what did not so it’s there if needed in the future. If you have any questions please contact us.