Stocking Smart: Unraveling the Pitfalls of Overstocking in Merchandise Planning”
Let’s say you are analyzing the inventory performance of a retail store that sells clothing.
The store has a few different categories of clothing, such as
– tops,
– pants, and
– dresses, and
you want to check the inventory levels for each category.
You look at the months of stock for each individual item within a category. You may see that the inventory levels are not well-balanced.
For example, Looking at the months of stock for each type of top. You may see that the inventory levels are low for the most popular styles. Higher for the slower-moving styles.
When you start to look at the average months of stock for the entire category, you may see that the number looks better.
But, This may show that the inventory levels are skewed. Towards the slower-moving items within the category.
There is a higher risk of excess inventory for these items.
If you then expand your analysis to many stores and categories,
you may see that this problem becomes even more pronounced.
For example, you may see that the average months of stock for dresses across all stores is
much higher than
the months of stock for individual dress styles,
which could say a problem with inventory management at the category level.
In this case,
it may be useful to drill down further into the sales data
to identify
which items within each category are the bestsellers.
To adjust inventory levels .
It may also be useful to track
– inventory turnover and
– other metrics to
ensure that excess inventory is being sold off and not sitting on the shelves for too long.
Any idea where else can Months of stock lead to issues?
Stock Up, Sales Down:
How Averages Hide More Than They Reveal
As a head of merchandise planning, you may think having a 3-month stock in your stores is a good thing.
But, what you don’t realize is that this 𝗮𝘃𝗲𝗿𝗮𝗴𝗲 𝗰𝗮𝗻 𝗮𝗰𝘁𝘂𝗮𝗹𝗹𝘆 𝘄𝗼𝗿𝗸 𝗮𝗴𝗮𝗶𝗻𝘀𝘁 𝘆𝗼𝘂.
Picture this:
You walk into a store that looks overflowing with merchandise.
But when you start looking for your favourite item, you realize they don’t have it in stock.
This is not only frustrating but also affects your shopping experience. Lowers your likelihood of returning to the store.
But it’s not just your shopping experience that takes a hit.
Overstocked stores can actually lead to
– decreased sales,
-lower conversion rates, and
– smaller ticket sizes.
How is this possible?
Well, 𝗵𝗮𝘃𝗶𝗻𝗴 𝟯 𝗺𝗼𝗻𝘁𝗵𝘀 𝗼𝗳 𝘀𝘁𝗼𝗰𝗸 𝗼𝗻 𝗮𝘃𝗲𝗿𝗮𝗴𝗲 𝗺𝗲𝗮𝗻𝘀 𝘁𝗵𝗮𝘁 𝘆𝗼𝘂 𝗰𝗼𝘂𝗹𝗱 𝗵𝗮𝘃𝗲
– 𝟲 𝗺𝗼𝗻𝘁𝗵𝘀 𝗼𝗳 𝘀𝘁𝗼𝗰𝗸 𝗳𝗼𝗿 𝗮 𝘀𝗹𝗼𝘄-𝗺𝗼𝘃𝗶𝗻𝗴 𝗶𝘁𝗲𝗺, 𝗮𝗻𝗱
– 𝗼𝗻𝗹𝘆 𝟭 𝘄𝗲𝗲𝗸 𝗼𝗳 𝘀𝘁𝗼𝗰𝗸 𝗳𝗼𝗿 𝘆𝗼𝘂𝗿 𝗯𝗲𝘀𝘁𝘀𝗲𝗹𝗹𝗲𝗿.
This leads to a less efficient allocation of resources.
It’s also less appealing to customers who are looking for the hottest items.
In other words, having too much stock can actually lead to having too little of what customers want.
Don’t let overstocked stores hold you back.
Get ahead of the game with a more strategic approach to merchandise planning.