Every retailer has to walk a tightrope of investment. On the one hand, investing in stock ties up valuable funds which could be used to grow your business – but on the other, for most retailers there’s no sale without stock. We asked Cin7 founder Danny Ing how retailers can structure their inventory to maximise cashflow.
First of all, Danny Ing says, retailers should be moving from a “forecast mentality” where they’re looking to identify coming trends to a “replenishment mentality”. Trend cycles are increasingly unpredictable, he says, as are external factors like the weather.
“Forecast is almost impossible, or at least really hard,” he says.
Unpredictable weather cycles can have devastating effects on retailers who’ve invested in weather-dependent stock, such as heavy winter coats or rainwear. They’ve been implicated in disappointing financial results for several apparel retailers recently, with Hallenstein Glasson, H&M and Forever New all citing unusual weather in 2016 reports.
Instead of relying on volatile external signals, Ing recommends retailers structure their inventory management systems to be more agile so they can move with the times. This means:
- Shorten the supply chain.
- Reduce lead times.
- Offer fewer variations of each product so you’re carrying less overall.
Ing says as part of this restructure, retailers should also assess the products they’re offering. Some products which are expensive and slow to sell – or, like a heavy winter coat, may in addition only sell under a certain set of external circumstances that are outside the retailer’s control - might be able to be replaced with a similar, faster-selling alternative.
“There will be a series of product lines that are just too risky,” Ing says.
Retailers should try to think like Zara and prioritise flexibility over a simple cost focus, Ing says. SMEs can build big-business-style flexibility into their supply chain by contracting out services like third-party logistics (3PL) and using dropshipping arrangements with suppliers.
“If you’re not making [your product], maybe it’s better to have a dropshipping arrangement with a supplier.”
Finally, Ing suggests retailers consider engineering their stores to fulfil online orders. This is an approach that Australian apparel retailer Cue has successfully integrated into its New Zealand stores from June this year, along with click and collect, ‘store to door’ and ‘endless aisles’.
“We’ve essentially nine times the inventory of any existing store from online,” Cue’s chief information officer Shane Lenton told The Registerin July. “Having that store footprint is a great advantage for us over a pureplay in terms of speed to delivery.”
Head office oversees Cue’s fulfilment using a reminder system that works off 10-minute intervals, which ensures store compliance is high. If one item in the order can’t be filled, the store marks it as ‘can’t fill’ so head office can reassign it to a new store.
“The customer is oblivious to this, it all happens in the background,” Lenton said.
Ing says the new generation of customers is “really, really efficient” and will shop with the most flexible, agile retailer that’s personalised to their needs.
“The consumers have already figured it out but the businesses are slow to catch up,” he says.