The Retail Planning FAIL
As I visited stores over the past week or so, as I shopped department stores, discounters and specialty stores, I was been struck by how much clearance inventory remained. Not every store was burdened with markdown goods, some had made a fairly clean transition to spring-forward merchandise, but far too many still had too much fall and winter merchandise they needed to move through.
On one hand, this was not all that surprising. Most of the major national chains have long had issues with effective inventory management. On the other hand, we’ve gone through two straight Christmas selling seasons where retailers almost to a man claimed they were going to hold the line on inventory levels to protect their margins. So what’s going on here?
I’ve sat in on enough retail planning meetings, both pre-season and in-season, to recognize that the cause of too much stock and too many markdowns begins with the decisions made in these meetings. I’ve seen buyers who were required to plan (and stock for) increases when their departments or categories were clearly in a down trend. I’ve seen one sub-category after another planned up, because there was perceived opportunity, without anyone seriously questioning the overall departmental increase that it was all rolling up to. I’ve seen pressures put on buyers to bring in lower priced goods while still planning significant dollar increases, leading to completely unrealistic increases in planned units. I’ve seen company financial plans completely out of synch with the detailed merchandising plans. The list goes on and on.
On one level, this is a failure of category management. Category management takes a bottom-up approach, challenging merchants to find opportunities at the category and sub-category levels, on the theory that identifying and pursuing each of those opportunities will drive sales increases. All too often, all it drives is excess inventory, and the corrosive effect on consumer urgency and profit margins from too much breadth and depth of assortments.
On a deeper level, however, it’s also a failure of strategic vision at the highest level. It presumes the predominance of inventory and assortments over customers and their experiences in the store. Customers come into stores with their likes and dislikes, need and wants, expectations and preferences. They expect retailers to be focused, have a point of view, and guide them through the choices they’ve made as merchants toward choices that they as consumers can be confident about.
For any retailer who wonders why inventories seem to be chronically above plan, why markdowns are consistently too heavy and margins consistently too light, I’d recommend looking first at their planning processes. More often than not, they will find in the very process itself a built-in bias toward more inventory, rather than less.