The Holiday Inventory Challenge: Getting Products in the Right Place

The National Retail Federation recently reported that most holiday merchandise has already arrived at stateside ports, which sounds like good news for North American retailers heading into the holidays. But having inventory in-country isn't the same as having it in the right place. That distinction will determine how the lucrative holiday season plays out for retailers nationwide. 

Overall inventory levels can look healthy while individual locations don't match local demand. For example, winter sports gear might be selling well in the Boston area while sitting largely untouched in warehouses outside Phoenix. Inventory counts and even national sell-through numbers might look fine overall, but at the store level, the New England location is heading toward a stockout while the southwestern locations are heading toward a markdown. The mismatch may go unnoticed until it’s too late. 

Forecasting Is Half the Battle

Even the best forecasts are often wrong. Companies with strong forecasts made months ago can still end up overstocked in some areas and understocked in others once conditions shift. Aggregate forecasts can hide critical differences in which products are selling, when demand peaks, and where inventory is needed. Planners need that level of detail to prevent local stockouts and excess.

The challenge grows even more pronounced with today’s extreme shifts in consumer demand. Volatile oil prices, inflation pressure on household budgets, job market swings and other macro factors can instantly change buying behavior. Now add the frenzy of holiday season demand patterns. When consumers suspect an in-demand item might go on sale, buying dips because shoppers will wait for a deal. That pulls down demand for alternatives. 

Shoppers will hold off on buying a big new TV before Black Friday, for example. When the sale hits, demand jumps sharply all at the same time. The swing from dip to spike is obviously much more difficult to plan for than typical demand. Daily updates help planners recognize how specific holiday dates and regional calendars compress demand into short, highly variable peaks. 

For retailers, the key is responding quickly to prevent stockouts and protect revenue. This is where so-called super-planners combine item-by-item, location-by-location, day-by-day granularity and use technology to turn that detail into action.

The Six-Week Window

If the question is whether retailers have holiday merchandise in the right place, the pre-holiday six-week window is the last real chance to fix planning issues before demand peaks. This gives planners a clear focus: the inventory already in-country and the short-term decisions that can still shape achievable outcomes.

Supply chains built with process agility respond best when conditions change in these final weeks. The key lies in the logistics.

Overseas products typically spend weeks moving by ocean freight from Asia to the West Coast before clearing Customs and moving through ports. Air freight can expedite shipments, but it’s costly and usually only viable for higher-margin products that can absorb the expense. The real opportunity for retailers is to become as accurate and responsive as possible with the product already in-country. A little leeway goes a long way.

Retailers can also strategically position inventory within their own networks. They typically position inventory to move top-down through warehouse networks before items reach stores. The current focus should be finding the right point in the network to keep items close enough to locations to respond quickly, but far enough upstream to retain the flexibility to send items wherever they’re needed once demand patterns become clear.

These decisions depend on granular, store-level visibility into what consumers are and aren't buying in real time. Advanced supply chain planning tools can use point-of-sale data and other signals to detect shifts and help redirect inventory where it’s needed most. Artificial intelligence and machine learning can also spot patterns in buying behavior, so planners can adjust forecasts and reallocate inventory before gaps become lost sales.

Planners need timely, reliable data to spot demand changes, identify where action is needed, and adjust plans without rebuilding them manually. Retailers with network-wide visibility, not just within their own operations, do this well and give themselves enough time to absorb the full picture and act within the six-week window or more.

Where Holiday Profits Disappear   

Getting these decisions right has consequences that extend beyond whether your local store has the buzziest product of the holiday season in stock.

Supply chains that proactively respond to sudden shifts, rather than reacting once store shelves are half empty, will inevitably stay ahead of demand changes instead of scrambling to catch up. Companies without this capability often end up with too much inventory in some products and too little in others. They're left managing empty shelves, lost sales and last-minute scrambles.

Avoiding these outcomes requires retailers to look across their entire network and weigh the cost of moving inventory against the risk of lost sales, rather than optimizing individual locations at the expense of overall profit. Needless to say, the financial consequences can be significant.

Reactive expediting in November and December eats into margins during the quarter when revenue and profit should be highest. Unsold excess just ends up as January markdowns. Item-level inventory also helps explain why a financial forecast can look healthy even when shifts in product demand, timing and location put sales and margins at risk.

The best-prepared retailers will turn a broad inventory picture into a clear understanding of what each store needs. That’s what lets planners make the right decisions when the holiday rush arrives again.

Adam Henry is assistant vice president of solutions consulting, and Daniel Stidsen is senior director of product management, at WiseTech Global.