The E-commerce boom has taken over the world many years back and there are E-commerce stores coming up by the minute even now. For a young company understanding how retail works can be a hard task.
One of the hardest problems faced by stores (Big and Small) is the problem of Inventory. How much inventory is the right inventory?
Let me give you an example.
There is a company called RedWhiteMobile which has been our client for the past 3 years. They retail mobile phone and accessories at large scale.
The big problem for them is handling of inventory. We don’t know how much of Inventory needs to be purchased of a specific phone type. The trends keep changing month on month, at times even day to day.
For example, If the sale of One Plus 3 phone are at 100 units this month. It cannot be safe to assume if it will hit 100 next month or not. And it’s even worse for the months that follow. Suddenly the demand can plummet to 20 units a month and if you are ordering the pieces based on past demand, then you would have overstocked the inventory. To sell these units, there is no other go than selling them at a much-reduced price (Discounting them).
This may seem like a simple move to make, but in truth, RedWhiteMobile is aiming to be a premium lifestyle brand and that means discounting isn’t an option.
An even worse scenario is to be very conservative in gauging demand. What if there are 3,00 potential buyers and based on past history you just stock 50 units. You lose massive quantities of sales.
These vagaries in demand affect the business considerably and it truly can make or break a business. But such important decisions cannot be left to chance, they cannot be left to the control of external market forces. A good business relies on data and absorbs as much as data as possible.
If there are two companies who start out at the same space and one is able to optimise inventory better than the other, over the years the business with better inventory management will be much ahead in terms of revenue and customer satisfaction.
Does the inventory problem only exist for the smaller e-commerce companies and retailers?
The answer is no.
According to a research report by the IHL group that specialises in retail consultancy. It is estimated that $800 Billion is lost because of Inventory mishandling.
This includes all the big players as well. One good example is that of H&M (Fashion retailer). The apparel industry runs based on seasons. If the season is over they remove the products. The problem with this is, the demand for certain products are more and they may not be trending anymore but will be selling extensively well. A large retailer needs to know how well their products sell to keep stock ready.
So there’s a solution for bigger retailers and that is what we will cover today.
Predictive Analysis is when a retailer is able to predict with reasonable accuracy the sales of the product in reference to each individual store.
All stores aren’t built the same and that means, if there are two stores – Store A and Store B and you have a product – White Shoes.
Say for example Store A is performing much better than Store B for White Shoes. Also, if Store B isn’t selling White shoes at all. There are two problems.
There’s not enough inventory in Store A – Loss of Sales
Deep discounting of Products in Store B – Loss of Profits
The Predictive analysis tool makes sure that White shoes from Store B goes to Product A. This way even a markup on the products will result in total sales.
This is called Inter-store balancing.
So what if there’s a larger retailer with 100’s of stores with 1000’s of products? This is where the real impact happens.
The level of potential here is staggering. Close to 1,00,000 combinations of transfers are possible.
With predictive analysis stores can easily figure out product quantities, sales amounts, best selling products drilled down based on colour and sizes and will also be able to factor the cost of transfer and see if it makes business sense.
In a sense, when the season hits, the retailer does not have to worry about what products to put where. They can confidently keep moving the products from one store to another based on sales reports.
Some stores have staggering numbers.
In terms of Inventory Costs – 25 to 40% has come down
Sales has increased considerably by 11 to 15%
Turnover has been increased by 3.5 times.
For a retailed these numbers can make a huge difference and these numbers added Year on Year can be a difference of millions and millions of dollars.
In the coming future, E-commerce is only going to get more data and analytics driven. There are already companies who are using AI to figure out what the best performing niches are and are building businesses in that space.
If you are able to predict with certain accuracy that this niche has a lot of potential, less competition, high margin and a few other parameters such as that, then there’s a winning situation.
Similar to this, the process of E-commerce will get highly automated. You won’t have to figure out what the best performing products are, you’ll automatically be provided with that information.
The only game that companies will play is the branding game. You have to be able to brand yourself really well. Anybody can get access to the best performing products and because of China anybody can get access to manufacturing.
Positioning your brand and making it aspirational is the key to your business. Along with customer service.
The E-commerce game is going to get highly competitive and if you are in the retail space it will be a good move for your business if you equip yourself with powerful tools such as Inter Store balancing and Predictive Inventory Management.