The shift from physical retail to eCommerce has some big retailers making more cautious purchases this year. As an interesting Reuters report tells us, big chains and departments stores will make do with less this Christmas. Specifically, they will stock less inventory, order smaller quantities and order later. Apparently, big retailers see overstock as a greater risk to their bottom line than stocking out.
Does it Make Sense to Stock Less?
Not all physical retailers need to make such a drastic choice. After all, big retailers, particularly in the US, must change a lot to adapt to eCommerce. For decades, they could rely on foot traffic to justify the cost of a big physical footprint. However, smaller retailers and those born in the age of eCommerce can and do thrive without that kind of overhead. Still, all retailers need to carry the right amount of inventory. So, the answer isn’t necessarily to stock less. It’s to stock correctly.
Why Big Retailers Are Doing It
Thanks to the shift to online sales, consumers don’t shop in big retail chains the way they once did. Consequently, products sit on shelves longer, increasing costs and eating up margins. Big retailers look to adapt by scaling back store sizes to decrease overhead and inventory costs.
But as they stock less, buy later and at a smaller volume, these retailers show they’re also changing their inventory processes to curb costs.
As Reuters points out, big retailers traditionally bought for Christmas many months in advance. That means they locked their inventory to the expectations long outdated by the time Christmas came around.
But as consumers shopped more online, physical retail failed to meet sales targets. This, in turn, forced them to clear excess inventory at markdown, eroding profits.
“Between the risk of a lost sale and the risk of a loss of margin,” one consultant told Reuters, “department stores are willing to lose the sale this year.”
Make Your Supply Chain More Dynamic
Big retailers have their own problems. For example, the number of days it takes many of them to clear inventory has gone up incrementally over the past few years. This has a lot to do with too much real estate, too much shelf space, and not enough foot traffic.
Smaller retailers may not have the same problems, but they still need to keep their inventories at the right level to keep costs down and profits up. It’s not about carrying less stock, but the right stock. And they can do this by using tools that make their supply chain more responsive to demand. This includes the realtime visibility and reporting that equip you for shorter lead times and faster fulfillment.