Magazine Article | October 1, 2005

Merchandising And Market Uncertainty

Source: Innovative Retail Technologies

Hot holiday merchandise – it costs to get it, but it costs more not to.

Integrated Solutions For Retailers, October 2005
Matt Pillar

October is upon us and the holiday shopping rush is imminent. If this reality just dawned on you, better luck next year. Your stores won't be adequately prepared for the frenzy unless your merchandisers have been filling the pipeline since shortly after they liquidated your overstock of 2004 holiday goods. But while smart retailers have been stocking up on the basics and the sure-fire merchandise, no one can anticipate the last-minute hot holiday products that will catch even the best merchandisers off guard.

Toy stores and consumer electronics retailers are especially prone to the unexpected, but no retailer is immune. Retailers of all stripes face two common, troublesome scenarios as Black Friday fever takes hold on the American consumer.

Scenario #1: Right Quantity, Wrong Place
You've procured the correct quantity of merchandise, but allocated it to the wrong stores and DCs. Black Friday hits. Shoppers go nuts, but the gizmos you allocated heavily to your East Coast stores are collecting dust on the shelves. Meanwhile, the gizmo shelves in your West Coast stores are empty and there's nothing in the back room or local DCs to replace them with. Why does this happen? Poor merchandise planning. Market uncertainty. A glitch in the supply chain. It just happens, will continue to happen, and you need to prepare for it by investing in both good planners and good forecasting and allocation solutions.

Randy Strang, VP of global consulting services for UPS Supply Chain Solutions, says retailers can deal with unexpected situations best if they're strategic about merchandise placement. "If you have what you anticipate to be hot-selling or late-breaking merchandise in your pipeline, position that merchandise strategically throughout the country for quick store replenishment," Strang advises. In other words, if there's even an inkling of uncertainty on which markets will support a particular item well, don't put all your proverbial eggs in one basket. Spread the merchandise out, and be ready to react when sales spike in certain markets by having a well-stocked DC nearby.

Scenario #2: Wrong Quantity, No Place
A manufacturer's late release or an unexpected product plug by Oprah results in an item taking the American consumer by storm, but leaving merchandise forecasters and allocators in the lurch. These situations force a retailer to make tough decisions about how much it wants to spend to feature a late, albeit hot-selling, holiday item. Procuring late-breaking hot sellers from overseas is especially challenging and expensive. With months-long ocean freight lead times on imports, an autumn release of or spike in demand for a popular item can put a retailer in a tight spot to have it store-ready by Black Friday. Air freight takes weeks off the time to market but can easily double the cost of procurement.

In these situations, retailers must weigh two uncertainties. First, how much will it cost to get this popular product to your stores in quick fashion? Second, how much damage will be done if you don't get the product but your competition does? In my view, merchandisers needn't look past Tickle Me Elmo and Cabbage Patch Kids in modern retailing history to make the right decision. Like the adage says, you've got to spend money to make money. Spend the money on good merchandising staff. Spend the money on good technology. And when the unexpected happens, spend the money to get hot-selling merchandise to the stores that need it.