Forecasters and planners face unprecedented challenges in meeting increased consumer demand across multiple channels.
It is only October and already it is beginning to look a lot like Christmas. For many people, they call it the holiday season – for business forecasters, we call it seasonality. For some companies, the next few months can see over a twenty or thirty percent increase in their average sales or even make up sixty percent or more of their total volume for the entire year. With so much at stake, having an accurate plan or forecast is critical for any business to meet customer demand.
So, as we go into this holiday season, what are the key factors to consider when planning for this all-important time of year?
More people will stay home this year
No, we are not saying sales will be down but there is an obvious trend that will continue, and that is more and more consumers will be using their computers, tablets, or smart phones to do their shopping this year. When comparing current trends to the prior year, we can see 4% – 6% more consumers deciding against the hassle of finding a parking space, fighting the crowds, and waiting in checkout lines. Instead, they are shopping at home in their PJ’s. Organizations such as the NRF (National Retailer Federation) are forecasting that online spending and other non-store sales will rise 11% to 15% this season.
There are a couple of impacts caused by these trends that we need to keep in mind. First, back to this thing we call seasonality: historically, back in the ‘good old days’ before Amazon, stores would need to have inventory ready by mid-October. For distributors or manufacturers, our holiday season would start in September and run through Thanksgiving. You may have got a small replenishment but, for the most part, the bulk of our sales came in the third fiscal quarter. The current trend of online sales is also skewing our traditional seasonality and we cannot rely as much on the prior year’s seasonal index, and need to adjust it every year according to these new trends. Store shelves are being replaced by distribution centers with lower buffer stock. What’s more, we are seeing smaller orders with greater frequency, and sales later and later into the season creating completely different seasonal patterns.
Next, consumers continue to demonstrate their preference for making purchases through a variety of channels including in-store, online, and click and collect. According to the International Council of Shopping Centers (ICSC):
- 90% of holiday shoppers will take advantage of omnichannel retailers with 40% of them buying online and picking up in-store
- 81% of those shoppers plan to make additional purchases when collecting their item(s)
For planning, this means not only forecasting what and when the consumer will buy, but adding the complexity of where they will buy and where you need to have it available.
The holiday season will be longer than prior years
Not only do planners and forecasters face a challenge in the season starting earlier, we also need to consider where the holidays fall in each given year. This year, it appears we have one extra day of shopping. Christmas falls 32 days after Thanksgiving this year, one day more than last year. It is on a Monday instead of a Sunday, giving consumers an extra weekend day to complete their shopping. This may not seem like much to some industries, but for those in the retail and distribution sectors who look at year over year comps, this is a big opportunity.
Not only is there an extra day at the end, trends are seeing consumers buying earlier – and this year, hopefully more often. While November and December remain the anticipated busiest shopping months, ICSC estimates an uptick in the number of people planning to shop before Thanksgiving at 66%—with almost one third (27%) starting as early as August. If you are only learning this now, it is already too late.
Planning must evolve beyond historical models given changes in consumer behavior
Over all, with the increase in online sales and the expected extension of the shopping season, it all adds up to the potential for more retail sales. Bear in mind that 46% of shoppers say they plan to spend more this holiday season. No matter who you poll or which report you look at, most forecasters have this year’s sales increasing by 3% – 5%. At the same time, what we are also seeing for planning is that it is not as easy as taking last year’s number and just adding something.
We are seeing new seasonality, longer selling seasons, increased complexity of distribution, and our job getting harder at the exact point when it is becoming more important. Exciting (and challenging) times to be a demand planner or forecaster. Happy Holidays…