The Impact of Seasonality on Retail Inventory

Retail inventory is dictated by seasonality trends throughout the year, and managing seasonal inventory can cause various problems for retailers when there are changes in stock demand.

While there are challenges that come with seasonality, if you can accurately predict sales trends and have enough stock to meet customer expectations, the holidays and changes in seasons can bring an immense amount of profitability for your business.

WHAT IS SEASONALITY?

Seasonality represents the changes in the number of sales over one year that occur in predictable patterns at the same time every year. For something to be seasonal, the schedule needs to happen within a year, so that can include weekly and monthly. As long as there is a pattern within a year, that is seasonality. Seasonality helps explain why there are parts of the year when retail businesses get differing amounts of customer orders.

How can seasonality impact retail inventory and how do you manage profitability?

Seasonality can either negatively or positively impact your retail inventory and sales, and that all depends on how well you predict and prepare for seasonal changes throughout the year. Ongoing inventory management is needed to help manage seasonal inventory and ensure you can meet demand and predict future sales.

The negative effects of seasonality on retail inventory include:

Overstock

This is when a retailer finds they have too much stock in the warehouse that is sitting there and not getting sold. This can happen to one particular item or multiple but most often with seasonal inventory that is only popular at certain times of the year. This results in a significant loss in revenue for retailers because items are much harder to get rid of once a popular season passes.

Think of leftover Christmas stock, perhaps a retailer ordered too much of their Christmas stock because they were expecting high demand, but find that they have a lot of leftover goods at the end of the Christmas period. That stock is likely to sit in the warehouse and becomes dead stock throughout the year unless the items get heavily discounted, but even then it is sometimes unlikely that a retailer can sell seasonal items once the season has been and gone.

Sold out stock

The opposite of the above negative effect is when a retailer sells out of particular stock and they can no longer meet customer demand. This usually occurs if a retailer sees an unprecedented increase in seasonal demand for a particular item or product line and were unable to properly predict this popularity. Once a retailer gets these items back in stock, the popularity may have passed and this could lead to more overstock.

Take the case of the pandemic where retailers saw unprecedented increases in sales, especially during the holiday season, and they were not prepared. Messages of sold out stock online increased 256 per cent in 2021 during Christmas compared to 2019. Selling out of stock will often lead to customers turning to competitors for products, retailers will lose out on sales and therefore decrease the profitability of their business.

It can be difficult to adequately plan for when a product will be popular, which is why learning about seasonality and predicting trends will give you the best ability to avoid selling out of stock.

Lack of storage in warehouses

If seasonality changes are not properly predicted, retailers may find their warehouses being filled with seasonal inventory that doesn’t get sold until a particular time in the year or month, so it’s important to properly plan how much inventory might get sold so you are not left with massive amounts of stock you can’t move that increase the costs of your inventory storage.

Supply chains must be prepared for changes in seasonality to avoid these risks, and nine times out of ten they will result in big losses to profitability for everyone involved in the production and sales process.

Managing profitability

To manage your profitability, the first step should be implementing proper supply chain management so manufacturers, distributors and suppliers are prepared for any changes that might occur throughout the year. First, mark out your predictions in the calendar, and go further than the big holidays that come to mind when you think about seasonality. Research is key for this step, and to be successful, you need to know the seasonality trends in your chosen niche like the back of your hand. For example, if you specialise in shoes, you would expect to see an increase in sales of school shoes at the beginning of the year for back to school and an increase in summer shoes like sandals during the summer months.

You need to have great visibility of each step of the supply chain to ensure you can see production updates at any time, that way you can make sure manufacturers are producing enough goods, distributors can plan for sudden changes in fulfilment and retailers can provide customers with adequate amounts of products without overstocking.

Dropshipping is a great way to avoid these supply risks, as retailers don’t have to keep a physical inventory so they can avoid filling a warehouse with stock and instead only place orders with a supplier once a customer places an order. Products go directly from third-party suppliers to the consumer you can tackle the challenges of seasonality because you don’t have to predict changes in trends, and customers remain happy and satisfied through the busier seasons of the year.

Understanding seasonal inventory and how it differs from your "regular" inventory?

Seasonal inventory refers to inventory that sees spikes in popularity during specific times of the year, whereas your regular inventory would be items that you see more of a steady demand with throughout the year with minimal changes in popularity.

Regular inventory might include things like cleaning products, furniture, makeup or skincare, and baby products like nappies or dummies. These are things your customers need consistently, year-on-year, so they won’t be affected by seasonal changes like weather and holidays.

Examples of seasonal inventory

Seasonality is when there are specific times within a year in which the sales of products change, for example, changes in the seasons and weather, specifically summer and winter. Things like beach towels, bathers and pool toys are all examples of seasonal inventory that people typically only buy during the warmer months. Products like heaters, gloves, beanies, big jackets or coats and snow equipment are only really bought when the weather is cold. Seasonality is the reason why winter items go on sale during summer and vice versa because retailers are trying to get rid of stock that isn’t in season.

Holidays also give examples of seasonal inventory, like Christmas, Halloween and Easter. Christmas trees and decorations see a massive spike in sales in November and December, Halloween items and costumes will start to gain traction in September through to October, and Easter eggs only really have the potential to sell big in March and April. Holidays are among the easiest trends in seasonality to predict for retail businesses, the importance lies in ordering just the right amount of stock so that you’re not left with excess Christmas baubles in March. It’s crucial to get your seasonal inventory right, because the holiday season can make up 30 per cent of retail sales for the year, making it a huge part of sales revenue to take advantage of. 

Yearly occurrences like sporting events such as the AFL Grand Final will increase sporting club merchandise sales. Even things like back to school at the beginning of the year will see a spike in notebooks and stationery items; Officeworks is busier than ever during this time of the year. The Olympics can have predicted spikes in sales, and tennis racquet companies are likely to predict and see an increase in interest during the Australian Open towards the end of January.

Income availability, or the day people get paid and tax season, can also cause a spike in particular item sales. People are more likely to be buying big-ticket items like vacuum cleaners and other appliances at the end of the financial year with more spending money and more sales.

With so many seasonal changes throughout the year affecting how well products sell, it’s important to have a great management system in place to minimise the risks associated with seasonal inventory.

BENEFITS OF IMPLEMENTING A SEASONAL INVENTORY MANAGEMENT SYSTEM

Seasonal inventory management helps to store, move and organise stock in the most efficient way possible to help meet seasonal demand throughout the year, and makes sure that you always have enough product on hand for your customers without overstocking your warehouse. It helps you minimise the costs associated with the supply chain and ensures you maintain ideal storage levels.

There are many benefits to having a great management system when it comes to seasonal inventory:

1. Avoid overstock

2. Less risk of sold out items

3. Helps you meet customer demand

4. Reduces storage costs

5. Improves profits

6. Faster fulfilment and shipping times

Avoid overstock

As you learn to manage your inventory, you will be able to predict the changes in seasonality during the year, and you can avoid overstocking your warehouse with seasonal products that are only popular at certain times of the year.

Take Christmas for instance, proper management of the supply chain helps you to predict exactly when shoppers will start buying Christmas decorations and trees and when seasonal demand might start to taper off. This way, you are getting the most out of the profitability of these holiday products and customers are likely to buy most of the product during the peak season, leaving you with minimal stock left over that you can easily move in January with sales and promotions, rather than ordering excess amounts of product that you are left to store all year round.

Less risk of sold out items

The opposite of overstock issues, stockouts occur if you don’t order enough and are met with higher sales than expected because you didn’t accurately predict changes due to seasonality, your profits will drop as customers will be unable to purchase your seasonal inventory. It might take time to restock these products, and by then, the season will have been and passed and customers may no longer be interested in those products.

By having year-on-year analytics and conducting research to tell you when changes in seasonality might occur and what levels of interest you may have in a product line, manufacturers will know how much goods to produce and distributors and suppliers will be prepared for the increase in demand, allowing you to meet all consumer demand and ensure you get the most revenue out of the seasonal inventory.

Helps you meet customer demand

Throughout the year, retailers have many customer expectations they must meet. During winter, there will be more of a seasonal demand for products like heated blankets or outdoor clothing. During Easter, if Cadbury was to run out of Easter eggs before the holiday period, it’s highly likely that customers wouldn’t be impressed and would be more inclined to shop from a competitor that does have stock.

Seasonal inventory management helps companies and retailers avoid these things and meet consumer demand, keeping the customer happy and more likely to return and shop with you when the holiday or season rolls around next year.

Reduces storage costs

Seasonal inventory management helps to reduce costs related to storage because you are more likely to move stock at a quicker rate and therefore have less storage on hand at any given time.

By predicting seasonality changes and ensuring each part of the supply chain is aware of changes in demand, you can get your seasonal stock in and out of the warehouse without worrying that you’ll have a huge amount of inventory left over which would therefore increase the costs of storage.

Improves profits

Increasing your inventory turnover means that you can sell more goods at a higher rate. Having the right amount of stock can make or break your profits as a retailer, so staying on top of seasonal inventory management will help you have optimal levels of stock on hand to meet seasonal demand throughout the year.

Each benefit of inventory management directly impacts the profitability of your business, so it’s important to implement a system that works best for your business.

Faster fulfilment and shipping times

Managing seasonal inventory allows retailers to have faster shipping times and get more items out to consumers. Your distributors will be aware of changes in demand, and you can even choose local suppliers to work with so items are closer to your customer base.

Studies show that 53 per cent of customers will cancel their purchase if a delivery is too slow, and 98 per cent of customers say that fast shipping directly affects their loyalty towards a brand, so having a great delivery experience is important to improve customer satisfaction and increase profits.

HOW TO MANAGE YOUR SEASONAL INVENTORY

To avoid some of the negative impacts of seasonality like selling out of stock and overstocking particular items, retailers must implement a management plan for theirsupply chain so they can predict changes and avoid losses in sales revenue. If you have planning processes that aren’t digital and lack accuracy in their predictions, you are likely to run into a lot of problems throughout the year.

Tips to help drive the profitability of your seasonal inventory

There are a few tips to help you improve seasonal inventory management and increase your retail sales.

1. Use data to track historical trends

You can see when changes in seasonal demand are likely to occur by looking at year-on-year sales for your company, which can then help predict seasonality changes and improve your inventory management.

By doing this, you are avoiding things like overstock or selling out of seasonal inventory, two things that can detrimentally affect the profitability of your business. You won’t be able to sell as many products without having a good idea of when those products are most likely to sell, so knowing the historical trends of your niche will help you increase profits.

If you are aware of when seasonal products are likely to sell and be more popular, you can also ensure your promotions and marketing strategies align with seasonality and changes in the supply chain. You can manage seasonal inventory to ensure you have enough back-to-school items in January while also promoting your range of products to increase consumer visibility.

2. Use promotions to help move leftover stock

This tip might sound like it won’t increase profitability or cash flow for your business, but in the long run, if you plan out your promotions to a schedule, this will help minimise any losses and increase product turnover.

Marking down products during seasonal periods is inevitable, but even if they feel like a loss, they could bring more customer traffic in the long run as people will be more likely to notice your brand. This also helps you save space in your warehouse which in turn decreases the costs associated with storing excess inventory because you are more likely to sell out of your seasonal products before the season is over. 

For example, customers are more likely to purchase Christmas decorations during and close to the holiday season, so marking down any leftover products in late December or early January will help get rid of excess merchandise so your stock levels are manageable for the off season.

3. Use an inventory management system

Common problems that can occur from not using inventory management software include stockouts and overstock, which are both key indicators that a supply chain has a poor inventory management process and can’t predict problems before they arise.

Implementing an inventory management system that gives you real-time inventory data and analytics, like how much stock you have on hand or how much inventory you will need during specific seasons of the year. They can also give you insights into Days to Sell Inventory or DSI. DSI tells you how many days on average it takes to sell out of inventory. Inventory management helps to keep your DSI at an adequate level, meaning it doesn’t take too long for the stock to move out of your warehouse.

These tools can also predict seasonality trends for you, and track how quickly products are selling compared to others, allowing you to make decisions like whether to offer promotions for specific products to move stock quickly. This will help to increase supply chain visibility, meaning you can have access to each step of the supply chain wherever you are and access things like stock levels and manufacturing times.

Having a snapshot of your inventory levels available to you at any moment helps to give you an idea of what needs to change in your supply chain, for example, if you notice low stock during a seasonal period of a popular product, you can restock that product and maintain profitability throughout the whole season. Digital systems also make sure you have the perfect amount of stock and are automated to make it easy for you to stay on top of seasonal trends.

4. Simplify fulfilment method

One of the best steps to help you maintain profitability and inventory levels through seasonal fluctuations is to simplify your fulfilment method. Dropshipping is a great method to remove some of the steps to a traditional retail supply chain and allows for quicker fulfilment times.

Dropshipping involves products going directly from the supplier to the customer. The retailer only orders from suppliers once a customer has placed an order, so you don’t have to worry about keeping inventory or predicting how much stock you will have to keep. Retailers will see a decrease in lost sales during the holiday season because they can order as they go and won’t lose out on customers when product demand is higher, and they can avoid profit losses related to inventory costs.

Dropshipzone works exclusively with Australian retailers and suppliers to offer fast shipping times and quality seasonal products and will help your retail business stay on top of seasonal fluctuations and improve seasonal inventory management.

Types of inventory management strategies

There are different kinds of seasonal inventory management strategies you can use to stay on top of things:

ABC analysis

This inventory management method categorises inventory based on how valuable they are and helps to prioritise your best product assets into three categories:

A- these are products of the highest value or your high-performing products that sell the most frequently, experts say this category often takes up 80 per cent of your total revenue which is why this level is prioritised.

B- these products are of mid-level value, often taking up 15 per cent of revenue and should be prioritised below A-grade products.

C- the lowest value products, often viewed as the worst performing category and obsolete inventory that only take up about 5 per cent of revenue. C-grade inventory might include stock that is harder to move and may need to be discounted.

This inventory management system helps reduce stock-related costs by helping you prioritise products that are more likely to have a lower DSI, making it less likely that you sell out of popular seasonal products or that you are left with stock you can’t sell. It's a great way for those looking for all-year solutions to managing inventory.

Just-in-Time (JIT)

This type of inventory management is when retailers only order seasonal products in small quantities to avoid dead stock and reduce warehouse costs. However, with this method, retailers run the risk of running out of popular products and have increased wait times for customers.

However, if you have accurate demand forecasting and sales forecasting you can avoid these risks by knowing exactly how much seasonal inventory you should have at different times of the year to help meet demand. The best way to forecast demand is to look at seasonal sales data from previous years. Historical data can help you determine how much stock you'll need during seasonal peak season and can help with inventory control.

First in, First out (FIFO)

This method means that you sell the items you receive first, and is a great inventory management tool for seasonal products because you have a higher inventory turnover, rather than products sitting in warehouses waiting to be moved.

This can also be interchanged with Last in, First out (LIFO), where the inventory you received last is prioritised to sell first.

Economic Order Quantity (EOQ)

The Economic Order Quantity method is great for increasing inventory turnover and helping manage seasonal inventory because it gives an accurate calculation of how much inventory a company will need at any given time of the year.

If you use this method well, it can help decrease inventory holding costs and improve profitability by giving you the right amount of stock based on seasonality trends.

Summary

Navigating seasonality throughout the year as a retail business can prove challenging, and many stock related issues can arise. Retailers might face selling out of a popular Christmas item during the holiday season, or find that they ordered too much stock of a heated blanket they thought would be much more popular in the winter but are now left with excess stock in their warehouse.

These challenges can be avoided through adequate planning to help predict seasonality trends and know what to be prepared for throughout the year. The ongoing management of things like your supply chain can also help you predict risks out outcomes before they happen.

Some ways to help combat the challenges of seasonality and increase the profitability of your business include:

• Using data to track historical trends

• Using promotions to help move leftover stock

• Using an inventory management strategy like the ABC analysis to organise stock

• Simplifying your fulfilment method by using dropshipping

Dropshipzone is free to sign up with and helps you minimise the risks associated with seasonality, and suppliers and retailers can provide their customers with high-quality products without worrying about keeping inventory and facing overstock issues. Sign up today to stay on top of seasonality trends throughout the year.

FAQs

What is seasonality in retail?

Seasonality represents the trends that occur around the same time each year, causing either higher or lower sales of particular products.

What are examples of seasonal inventory?

Seasonal inventory examples include Christmas decorations, stationery products at the beginning of the year, bathers in summer or beanies in winter.

What types of inventory management are there?

The main types of inventory management include ABC analysis, Just-in-Time (JIT), First in, First out (FIFO) and Economic Order Quantity (EOQ). Just-in-time is a popular option for those looking for effective, seasonal inventory management methods.