So much of retailers’ margins is decided a long way from the checkout queue. Healthy profits depend on keeping the right amount of stock to match demand.
Teasing out this golden ratio has been a challenge for shop owners from time immemorial. But now that retailers maintain parallel sales channels, online and in-store, it has become even more complicated to allocate the right volume of stock.
Supply chain experts increasingly recommend that stockists limit the inventory they keep in-store while expanding their product range for online ordering. Let’s take a look at how – and why – this works.
Traditional inventory management vs selective in-store stocking
Older inventory management approaches have tried to match supply with demand, without thought to the sales channel. Overstocking and understocking are perpetual worries. Too much inventory represents money wasted, while not holding enough will let down eager customers and lead to missed sales.
The smart money is increasingly going on a new strategy: downsizing in-store product ranges to focus on a broader selection online.
This means taking a very selective approach to those few products you do hold in-store. Various factors will feed into this decision: historical sales data, market trends and customer demand. Put simply, retailers need a data-driven inventory strategy.
A physical store should contain only your bestselling, highest-margin items. But you need to ensure your reduced in-store inventory still meets customer needs and preferences. That takes digging deep into your data to align your inventory with your customer preferences.
In that sense, data analytics is now an investment that directly impacts retailers’ bottom lines.
Meeting customers’ expectations with a scaled-down in-store selection takes a delicate balance. Retailers must ensure that their reduced in-store inventory isn’t missing the items that people come into the store for in significant numbers to buy.
Offering a curated selection of popular items, complemented by a much larger online catalogue, will strike the optimal balance between customer demand and inventory efficiency.
How data-driven stocking helps retailers
This inventory model presents potential benefits for retailers in both liquidity and brand value:
Reduced stockholding costs: a smaller in-store inventory means lower storage and holding costs.
Improved cash flow: with less capital tied up in inventory, retailers have more firepower to invest in their own growth.
Better store layout: a leaner in-store inventory allows for a more spacious, customer-friendly physical retail experience. A high-end clothes store might use its floor space to reinforce a minimalist brand aesthetic, with just a few showpiece items on display and a touchscreen tablet to check the in-store and online availability of an item.
How to get it right
A selective (but effective) in-store stocking strategy takes some finessing. You’ll do best by focusing on these two planks.
1. Customer comms
Your communication strategy should carefully manage customers’ expectations about how much stock they can find in-store. It’s important to make it clear to customers that they’ll easily be able to find almost anything they’re looking for online and direct them there.
2. Inventory and fulfilment
Effective e-commerce takes maximum visibility over your warehoused stock. Retailers should invest in robust inventory management systems to ward off the disappointment of stockouts.
When most of your stock sits in warehouses waiting to be summoned, logistics is something you simply must get right. To meet online customers’ high expectations, start with your supply chain. For an insight into how this works, try our article on customer experience (CX) design in supply chain management.
The tools you need to make it happen
With retailers coming under immense margin pressure, any cost reduction that doesn’t sacrifice the customer experience will surely be welcomed.
By carefully curating in-store product ranges, leveraging data-driven insights and optimising online fulfilment, retailers can strike the right balance between inventory efficiency and customer satisfaction.
Pulling together all these strands isn’t easy for any retailer to achieve manually. Luckily, you don’t have to try.
The new breed of order management systems lets you manage stocking, fulfilment, personalisation and payment processing all under one hood. For a practical, expert perspective on how digital tools can make retail simpler, download our new whitepaper: Why Modernise Your Retail Order Management Systems?