The Merchandise Planning balancing act has never been more tricky.
The confluence of supply chain disruptions, rising costs of raw materials and pandemic-driven demand peaks and troughs has created the perfect storm for merchandise planners and in turn the retail executives whose goals they are trying to meet.
The task of meeting a retailers’ critical inventory levels, stock turns and margins are becoming increasingly more challenging.
The situation is complicated further by the prospect of rising local inflation, exchange rate gyrations and increasingly erratic weather patterns rendering traditional seasonality models obsolete.
An increase in volatility in of any one of these variables would be troublesome for a retailer, but when all six are in play it makes for a genuine perfect planning storm.
The implications of this for a retailer’s bottom line, and their balance sheet, are enormous and quickly becoming the single biggest issue facing the industry today.
The recent result reporting season from Australia’s leading retailers all made reference to the future challenges of supply chain, demand variability and the prospect of rising prices.
All retailers know that finding the perfect balance between stock levels, sales and margin is a nirvana that is impossible to achieve.
For discretionary retailers – fashion, homewares, sporting goods and the like – the balancing act is harder. They turn to their Merchandise Planners to find the optimum balance of these variables. The planners in turn use data and adopt planning methodologies of varying complexity to move stock at optimum price and margin.
Merchandise Planning – the hardest job in the business
The role of the Merchandise Planner has never been more important, and in the current environment is becoming increasingly more difficult.
The demand variability of the last two years across categories has been unprecedented, with some unable to meet demand and others being forced to sit on stock for six or more months as shutdowns impacted trade.
This year’s la-Nina weather pattern played havoc with sell through rates, and such weather extremes are becoming the new norm.
Those retailers with a seasonal component have been forced to do more twists and turns than ever before with their discount and pricing strategies to meet sales and margin targets.
On the supply side, lead times have never been variable. Labour shortages (mainly covid related) in critical manufacturing regions have reduced manufacturing capacity by up to 30%, causing longer lead times for production orders.
The well-documented shipping delays for offshore sourcing exacerbate the challenge. Merchandise Planners are being forced to update live merchandise plans based on constantly changing stock landing dates. The impact of these delays on the week to week ranging and assortment decisions is a factor that will continue for the foreseeable future.
Increased freight and raw materials costs, coupled with increasing local wages, is putting pressure on prices. Managing new opening price points, discounts, markdowns, and the resulting final margins in an inflationary environment is a challenge not faced by Merchandise Planners in the last 20 years.
Finding the balance between preserving initial margins, in the face of cost rises, and delivering a final GP% that is sustainable for the business is now becoming a true science. The role of discounts coupled with seasonal markdowns needs to be managed more than ever.
Because of these challenges, Merchandise Planners are in hot demand in the industry. Retailers need to ensure their planning team have access to the right data, technology and planning processes to ensure the planners can cope with the increasing complexity of the demand and supply environment. The balancing act of sales, stock and margin has never been more tippy!
To learn more about the role information and software can help with your Retail Planning please visit The Retail Score.