How to Manage Seasonal Fluctuations in Sales
This year, more businesses are tech-savvy and leveraging new ways to drive sales and manage fluctuations during the holiday season. Here are their tips.
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"For retailers, if you have a lackluster February or August, or back-to-school season, you can usually make up for some of that shortfall at other times of the year." That is often not true for the winter holiday season, however.
A lackluster 2009 holiday sales season came on the heels of a ruinous 2008, when retail sales plummeted 3.9 percent. This year, the National Retail Federation (NRF) is hopeful that retail sales will increase a moderate 2.3 percent to $447.1 billion.
As retailers prepare for seasonal sales and how to accommodate fluctuations between Thanksgiving and Christmas, some things are different this year. Businesses are tech-savvy and trying to leverage new ways to drive sales, such as reaching consumers on their mobile phones and providing ways to accommodate the growing numbers who want to be able to shop 24/7.
But some aspects to managing seasonal sales fluctuations always manage to stay the same, year in and year out. "For most retailers, that fourth quarter is extremely important for their overall profitability," says Dan Butler, NRF's vice president for merchandising and retail operations. "For retailers, if you have a lackluster February or August, or back-to-school season, you can usually make up for some of that shortfall at other times of the year." That is often not true for the winter holiday season, however.
The following article will go over ways to plan for seasonal fluctuations in sales, how to best manage inventories, and when to start marking down merchandise.
Dig Deeper: The Markdown Blues
Managing Seasonal Sales: Plan for Fluctuations
The best way to manage seasonal fluctuations, and maintain positive cash flows throughout the year, is to develop detailed sales and inventory plans before the season begins, use those plans to guide your merchandise purchases, and as benchmarks in-season to guide your progress, according to Ted Hurlbut, the principal of Hurlbut & Associates, a merchandising and inventory management consulting firm based in Foxboro, Massachusetts.
"Planning takes time -- time you may not think you have -- but invariably those independent retailers that take the time to carefully plan their sales and inventory are far more profitable than those that don't," Hurlbut says.
Before you begin the planning process, you will need to know what you've sold in the past, and how much inventory you had on-hand to generate those sales. That means using your point-of-sale (POS) system as a resource. "While effective planning goes far beyond merely what you did last year, this information is an important reference point," Hurlbut says. "You will need to extract that data from your POS system, by category and month. Unfortunately, many POS systems do not maintain a history of monthly inventory levels, so all you may be able to extract is sales data."
Second, you will need to determine the unit of measure that you will plan with. The two primary options are to plan in units or in retail dollar value. "In almost all instances, I recommend planning in retail dollars," Hurlbut says. "If you are going to do your planning in units, be clear in your own mind why units are the way to go in your particular business, and planning in retail dollars is inappropriate."
Managing Seasonal Sales: Building a Plan
To start, you need to develop a sales plan. For independent retailers, most sales plans are broken out by category and month. In some cases, especially highly seasonal businesses or categories, it may be more appropriate to plan sales by the week. "The question to ask is a very basic one: 'What is the most likely level of sales from stock (excluding special orders) by month (or week)?'" Hurlbut advises. Note that the question is what the most likely level of sales is, not what's the most you could possibly sell, he says. A business could easily get in trouble by planning on the latter.
The following are considerations in developing your seasonal sales plan:
- Review the prior year's sales histories. Make allowances and adjustments for unusual events, such as weather, out of stocks, one-time promotions, etc., Hurlbut says.
- Factor in the appropriate increase or decrease. Based on your current sales trend and your reading of the sales potential of the category for the upcoming season, you may forecast for higher or lower seasonal sales. For larger categories, it may make sense to break the sales plan down further, by sub-categories, styles or vendors.
- Marketing plan. How are you going to reach potential customers? In addition to advertising and direct mail, the Internet has opened up a wealth of new ways to reach customers. Hopefully, all year long you have been collecting customer e-mails so that you have a manageable list of contacts. Some companies are also toying with location-based advertising to reach customers when they are near by a store and lure them in with promotions.
- How to differentiate your business. One common issue for many independent retailers is how to remain competitive with national chains in your market and other retailers, particularly if they offer customers low prices. Butler suggests thinking along the lines of these questions: "What makes my store unique and different to customers? What makes me distinctive? What do I offer that they don't?"
- Hours and staffing levels. Determine whether you need to add seasonal staff to help make this a banner year, or work with staff to stagger schedules so that your business can be open when people are available to shop -- which may involve more nights and weekends. "Many retailers are adjusting their hours. Maybe they close on Mondays or are only open Monday afternoon," Butler says. "For many retailers, Sunday has becomes the second busiest day of the week."
Dig Deeper: Placing Your Bets -- Managing Pre-Season Commit Percentages
Managing Seasonal Sales: Buying Inventory
For many independent retailers, the largest asset on the balance sheet is inventory. "Inventory is the 'active' asset, which generates the business's sales and profits," Hurlbut says. "But without careful planning, inventory can easily get out of line, resulting in heavy markdowns due to overstocks and, ultimately, serious cash flow problems."
For retailers whose businesses are subject to seasonal fluctuations, the challenge of managing inventory levels is magnified. Seasonal fluctuations in sales levels require that inventory levels anticipate both the seasonal peaks in sales as well as the seasonal ebbs.
Plan inventories
Once a sales plan has been developed, the next step is to build an inventory plan. "The question to ask is this: 'How much inventory do I need at the end of each month to support the next month's sales, as well as maintain effective merchandise displays?'" Hurlbut says. In some cases, the ending inventory may need to support more than just one month of future sales.
It makes little sense to bring in more inventory at any given time than you need to set your displays, support your planned sales until the next vendor delivery, and provide a safety stock in the event of an unexpected sales spike or a late delivery, Hurlbut says. Committing to inventory too far in advance, and then bringing it in all in one shot is one of the surest ways to find yourself over-stocked down the road.
Plan discounts ahead of time
There are two primary types of discounts a retailer might take:
