Inventory management is at the heart of any retail business. You need the right amount of stock to sell to customers.
Buy too much and it’ll gather dust in the stockroom. Buy too little and you’ll have angry customers who can’t get what they want.
Both options lose you money.
You likely have it mastered in your day-to-day life, but it becomes a whole other ballgame in the lead up to the holidays – especially as it can be incredibly difficult to predict.
Are you going to get more customers? Will your promotions work? Or will customers be wooed by online deals or big-box stores who can slash their prices to levels you just can’t compete with?
We spoke with experts in inventory management to get you actionable tips for managing your inventory during the holiday rush.
How to manage your inventory during the holidays
According to eMarketer, this holiday season is expected to see sales reach up to $1.035 trillion. There’s no denying that a healthy chunk of that money is going to go to e-commerce, but there’s still a slice of the pie available for smart brick and mortar stores.
So what should you do so that you’re prepared for the holiday retail rush?
- Get on top of your demand forecasting.
- Consider investing in inventory management software.
- Have a plan for merchandising, out-of-stocks, and safety stock.
- Regularly spot count your inventory.
- Put a crystal clear return policy in place.
- Know your inventory management formulas.
- Put a contingency plan in place for January.
That’s the short version, so on to the longform tips on inventory management:
1. Get on top of your demand forecasting for better inventory management
Go through any and all good data you have.
Emphasis on: good.
If you have a digital point of sale (POS), you should have easy access to your sales data. Likewise, if you’re running a tool like Pointy, you’ll be able to see popular products and products people are searching for. This can be a good indicator for products that will sell well.
It’s also always good to listen to your customers. Are any products coming up in conversation? You can probably bet on those, especially in toy and bookstores, where trends are likely to explode. Don’t be afraid to ask your best customers if there’s anything in particular that they’re looking for – there may be be a kernel of something useful in quick market research of a handful of your best customers.
Meanwhile, Google’s Keyword Planner and Google Trends can give you rough data on products people are actively searching for online. It’s a two-step process: you can find relevant product keywords with Keyword Planner and then use Google Trends to vet if the product is on an upward trend.
You can read more about that in our blog post about surviving the holiday retail rush.
Relevant market analysis is always a good shout too for intel, though it may not be specific to your location.
Your final port of call is your reps, tradeshows, wholesale platforms, and any other chains you use for finding potential suppliers or products. Work closely with them to identify products that should sell and to ensure you have the right product mix in your store.
Of course, while data is always useful, there is some guesswork involved in demand forecasting. You can’t control whether customers come into your store or not, so be as prepared as possible.
2. Abandon clunky spreadsheets for inventory management software
If you don’t have a digital POS or inventory management software, your demand forecasting will probably be much clunkier.
Your inventory management may be a system of many spreadsheets.
This is fine if it works for you, but you could be creating excess work.
Mark Gilbertson, Business Development Manager at EKM advises, “As your business grows, you should start to look into ways you can improve and optimize your inventory management.
“Businesses who struggle with inventory management can find their costs spiraling out of control and good inventory management can save a company thousands in wasted inventory storage and redundant stock.”
What to look for in good inventory management software:
- Improved inventory management and demand forecasting.
- Barcoding and scanning so that you don’t need to manually upload/update data.
- Integrations with other software you use.
- Real-time stock information so you’re running on up-to-date information.
- Vendor management for managing re-ordering etc. from vendors.
- Purchasing and shipping.
It’s also useful if you can set up stock alerts and re-order points so that you avoid any stock-outs.
Depending on how many products you have and how tech-savvy you are, the type of software you’ll want will vary – but at the very least, demand forecasting is essential to saving you time and money.
“Accuracy is paramount to your success,” says Rebecca Waite, an Account Manager at EKM. “The more information you can hold against your inventory to make it easily accessible will enable your business to grow.
“This includes where the stock is located, how much it cost and where to source it from. Ensuring you are aware of the most popular stock lines and how long it takes to process and deliver to you can be essential to meeting your customer’s demands and keeping them happy.”
Prioritize accuracy and scalability
For those of you with more than one store (your online store counts as a second location if you have one, as does additional brick and mortar locations in this instance), you want a system that aggregates your inventory across all locations in real-time.
Rather than using those clunky Excel spreadsheets for each location, you can access your sales and inventory reports for every location, from anywhere. Best of all, the information is accurate and not prone to the same level of human error as manually filling in a spreadsheet is.
“Any resources you spend on inventory can’t be used elsewhere – like in marketing – to grow your business,” says Tristan Martel, Customer Growth Specialist at Lightspeed.
“Poorly tracking your inventory can lead to over/understocking and ultimately cash flow issues. On the other hand, properly tracking your inventory levels across each of your locations, both on and offline, is the foundation of a rock-solid inventory management process.”
3. Know where everything is going, how you’ll work with overstock/safety stock, and how you’ll process ‘out of stocks’
Knowing you need a certain amount of products is one thing. Knowing how to best sell these products is something else entirely.
Being mindful of where your products are going includes your stockroom and on the floor. With lots of products arriving, it can be tempting to bundle boxes in a pile on the floor – but that can be a big mistake, especially with seasonal staffers coming in who may not know your inventory well or your regular system.
“You’re only going to get frazzled if it’s not tightly ordered,” says Brad Dunlap of Best Price Nutrition. “If everything was stocked last minute or without any rhyme or reason, you’re going to have a hard time finding what you want.”
The holiday rush is tricky enough to deal with, without adding unnecessary stress.
Know where your stock is going to live in-store too – but don’t be afraid to test out different retail merchandising. A low-stock item may not actually be a dud: it could be that customers can’t find it. Consider various retail merchandising strategies, like bundling, cross-merchandising, end-caps and more.
Make sure you communicate any retail merchandising changes with your staff so that they’re prepared; you don’t want them telling a customer that you don’t have an item because they can’t find it.
Lastly, have a plan in place for your safety stock: this is your buffer stock that may not necessarily sell. This stock shouldn’t be too holiday-specific – it may become almost worthless at the end of December.
Demand and lead times from your vendors can change wildly in the lead-up to the holidays, so be prepared. Your demand forecasting will help here, as will a good relationship with your vendors.
You can use an equation to figure out your safety stock, or your inventory management software may calculate it for you. If you do need to work it out for yourself, it is:
You can read more about calculating safety stock here.
4. Spot count your inventory
This step might seem unnecessary, particularly if you’re running an inventory management platform, but mistakes can happen or things can go awry.
Brad Dunlap swears by regularly spot counting inventory, a piece of advice he gleaned from managing a popular chain of hardware stores in the Midwest. “The last thing you want to do is to tell a customer you have stock, when in reality you don’t,” he says. “You’ll tell them you’ll be right back, but you walk back empty-handed and you have to explain your system inventory wasn’t accurate.
“Mistakes happen – maybe sales didn’t go through on the system, a staffer made a mistake, or a delivery logged incorrectly. Whatever happens, spot count your inventory in the run-up to busy periods to make sure you’re covered.”
It might seem unnecessary, but it can save you the potential headache of disappointed customers.
5. Make sure your return policy is crystal clear
Returns after the holidays can get messy. Consumers won’t have receipts or they’ll want to return or exchange a gift. They may not even be entirely certain that the product they want to return or exchange actually came from your store.
Your return policy will need to be set in stone and very clear.
A tip on the psychology of phrasing: avoid words like ‘no’ – and instead, say something like: ‘returns offered up to 30 days after purchase with a valid receipt’. It creates a more positive experience for your customer who will feel like they’re being allowed something, rather than having it taken away.
6. If you go with an inventory management formula, know it and stick to it
We touched on one inventory management formula earlier with the safety stock formula. There are over a dozen more retail maths formulas used by retailers and small businesses to work out various areas of their business.
For inventory management, TradeGecko mentions four key formulas:
- Economic order quantity.
- Days inventory outstanding.
- Reorder point formula.
- Safety stock formula.
7. Have a contingency plan in place for the post-holiday rush
Surviving November and December might be the focus for now, but you can’t forget about January either. If you’re running post-Christmas sales, the first week of January is likely to be a whir of promotions and low prices.
Even if you’re not planning on a sale, you’ll need to put a solid contingency plan in place: do your forecasting based on past years, have a plan in place for excess inventory (you may need to cut your losses on any very holiday-specific products, while other products can be rebranded as part of a “new year, new you” promotion), be aware of product trends and demand, and consider that shoppers in January will have a very different mindset to those in December.
Good inventory management is vital to the success of your business. Customers need to trust that you have what they want, otherwise they’ll leave your store angry. You may even lose a customer for good.
If you’re working from spreadsheets or an old system, consider upgrading to inventory software or a cloud POS such as Lightspeed, Square, Vend, or Clover.
These point of sale systems give you access to better demand forecasting and make inventory management much easier – while also allowing for the installation of apps like Pointy, which puts your products on Google and shows accurate inventory levels to customers when they search for stores or products like yours.
Want better inventory management?
Pointy is a retail tool that connects local searchers to stores that sell what they’re looking for.
Pointy connects to the store’s POS and puts its in-store products online alongside a live inventory so local people can see if the product they want is available. The customer can then see the store address and get directions to complete the sale.