The confluence of supply chain disruptions, rising raw material costs, and pandemic-induced peaks and troughs in demand has created the perfect storm for commodity planners and, in turn, market leaders. retail business whose goals they are trying to achieve.
The task of meeting a retailer’s critical inventory levels, inventory turns and margins is becoming increasingly difficult. The situation is further complicated by the prospect of rising local inflation, fluctuating exchange rates and increasingly erratic weather patterns rendering traditional seasonality models obsolete. An increase in the volatility of any of these variables would be troublesome for a retailer, but when all six are in play, it creates a perfect planning storm.
The implications of this for a retailer’s bottom line and balance sheet are enormous and are quickly becoming the biggest issue facing the industry today. The recent earnings reporting season from major Australian retailers all referenced future supply chain challenges, demand variability and the prospect of higher prices.
All retailers know that finding the perfect balance between inventory levels, sales and margin is an impossible nirvana. For discretionary retailers – fashion, housewares, sporting goods, etc. – the balance exercise is more difficult. They look to their Merchandise Planners to find the optimal balance between these variables. Planners in turn use data and adopt planning methodologies of varying complexity to move inventory at an optimal price and margin.
Merchandise planning – the hardest job in the business
The role of the Merchandise Planner has never been more important and in today’s environment it is becoming increasingly difficult.
The variability in demand over the past two years across all categories has been unprecedented, with some unable to meet demand and others forced to sit in stock for six months or more as closures have had a impact on trade. This year’s La-Nina weather pattern has wreaked havoc with spring/summer seasonal sale rates, and these extreme weather conditions are becoming the new normal. Retailers with a seasonal component have been forced to make more twists than ever with their discount and pricing strategies to meet sales and margin targets.
On the supply side, lead times have never been variable. Labor shortages (mostly covid-related) in critical manufacturing regions have reduced manufacturing capacity by up to 30%, resulting in longer lead times for production orders. Well-documented shipping delays for offshore supply compound the challenge.
Commodity planners are forced to update live commodity plans based on ever-changing inventory landing dates. The impact of these delays on range and assortment decisions from week to week is a factor that will continue for the foreseeable future.
Rising freight and raw material costs, coupled with rising local wages, are putting pressure on prices. Managing new opening prices, discounts, markdowns and resulting final margins in an inflationary environment is a challenge that merchandise planners have not faced in the past 20 years. Finding the balance between preserving initial margins, in the face of rising costs, and delivering a sustainable final GP percentage for the business is now becoming a real science. The role of discounts coupled with seasonal markdowns must be mastered more than ever.
Due to these challenges, merchandise planners are in high demand in the industry. Retailers need to ensure their planning team has access to the right planning data, technology and processes to ensure planners can cope with the increasing complexity of the demand and demand environment. offer. The balance between sales, inventory and margin has never been so delicate!
To learn more about roles information and software that can help with your retail planning, please visit https://www.theretailscore.com