“Sale, Sale, Sale” – the magic mantra that is used by retailers all over the world. Sale is the remedy for liquidating excessive inventory and boosting falling sales. The slash in selling price, which is music to consumers’ ears, is however, dreaded by retailers, who hate to see their precious goods being offloaded for peanuts. Have you wondered as to why a retailer resorts to ‘sale’? Can one minimise, if not avoid, discount sale.
A “sale” includes promotional markdowns as well as the forced markdowns that are the result of a manufacturer’s over-supply. Prof Marshall of The Wharton School has reported that store markdowns had increased from 8 per cent of the store sales in 1971 to 33 per cent in 1995 in USA. Similar trends are visible in India as well now. Retailers everywhere are having a hard time matching supplies with demands. The mismatch is becoming more acute due to proliferation of SKUs for every item and rapid technological changes, which result in short life cycle for consumer products. However, during the last decade, some retailers have dramatically improved their performance in ordering, distribution and inventory management. They have done so through ‘Rocket Science’ retailing – injecting high grade analytics into retailing.
‘Rocket science’ retailing is the act of blending the traditional forecasting methods, which are largely based on the vision of a few persons, with the awesome capabilities of computers. It involves a marriage of scientific and intuitive thought and work processes. It merges hard data and commercial instincts with computer models and analysis to create a high-tech forecasting system supported by a flexible supply chain. The four areas critical to achieving ‘Rocket science’ retailing are:
- Supply-chain speed
- Inventory planning
- Gathering accurate, available data
The relevance of accurate forecasting in bolstering the bottom line cannot be over-stated. Matching supplies with demands is a fundamental requirement of all retailers; be it a mango seller on a push cart or Wal-Mart. While it is easy to quantify the loss on account of unsold inventory, which has to be disposed off by markdowns or by simply throwing away highly perishable goods like foodstuff, the loss on account of stock-out is more difficult to assess and quantify. Typically, there is little research or
knowledge about the loss incurred when a product in demand is not available on the shelf. The consumer reaction in case of stock-out is highly varied. Only a rare consumer would take the trouble of registering the fact of a ost sale on account of stock out.
Upto one-third of customers entering a store leave without buying because they can’t find what they came for. And all this may be happening when the store is brimming with merchandise! There is often the issue of a drought in the midst of a downpour! Too many products, but too few of the right products. Retailers understand the importance of remaining well stocked – you can’t sell it if you don’t have it in the inventory. But they often end up with mountains of unsold inventory at the end-of-season. The expenses in running a retail business are fairly inelastic – you pay the same rent and the same wage bill whether you sell one piece or a thousand pieces.
ABOUT THE AUTHOR
Mukul Jain is Executive Director at CONCOR.