‘Tis the season… for merchandise financial planning
See why retailers need MFP evidence and insight — not experience and instinct — to win this holiday season.
The definition of insanity, according to Albert Einstein, is doing the same thing over and over, and expecting a different outcome.
So, why do retailers consistently find themselves either running out of stock, being overstocked, or having smaller customer baskets than expected from Black Friday through Cyber Monday to Christmas Eve? It’s not as though Thanksgiving, Christmas, and other holiday celebrations come as a surprise each year. These holiday shopping events are a given, but consumer spending is highly variable and difficult to predict.
Black Friday and Cyber Monday are the launchpad for the holiday shopping season, a time when retailers can seize the opportunity to make revenues soar and clear the shelves for next year’s stock. Black Friday is so named because traditionally it’s when retailers’ accounts go from being “in the red” to “in the black.”
However, it’s possible this year’s holiday shopping season will be different. Global economic uncertainty, geopolitical unrest and the cost-of-living crisis have pushed up inflation worldwide. According to Moody’s Analytics, Americans are spending around $709 more per month for the same goods and services compared to two years ago. Experience tells us that this level of fiscal pressure on households could put a dampener on spending over the holiday season.
And yet the evidence suggests differently. The National Retail Federation (NRF) predicts holiday spending will be healthy in 2023 and expects US retail sales to grow by 3–4% over November and December sales in 2022. Sales are expected to reach between $957.3bn and $966.6bn, an increase from the $929.5bn in sales in 2022. Similar growth is also expected in the UK and across Europe.
With consumers expected to spend an average of $875 on gifts, food, decorations, and other seasonal items, and 82% of people expected to shop during Cyber Week, this is a pivotal time for merchandisers. So, why do retailers continue to stumble?
Insight, not instinct
For many, the issue lies in prioritizing experience over evidence and using spreadsheets as the repositories of that experience. Experience is useful and desirable when it comes to merchandise planning, but it can also misguide strategies, miss opportunities to make adjustments, and it often takes place in silos of role and experience.
Holiday events require careful coordination across multiple disciplines and stakeholders, yet traditional approaches are notoriously siloed in concurrent — rather than connected — planning approaches. Experienced merchandise planners understand the pressures and supply chain challenges around the holiday season, and often rely on the tools they know best: spreadsheets. However, spreadsheets are subjective, populated by users influenced by the biases of previous experience, which can blind organizations from correctly interpreting actual evidence.
And supply chain is only one dimension of holiday planning. Finance, workforce, sales, and marketing are other critical stakeholders. What’s needed is a systematic approach that curates both historical and external data and rigorously analyzes it through probability-based scenarios — all connected across every stakeholder function from merchandising (including product placement pricing to promotion) and finance to monitor performance and make adjustments in real time.
In essence, they are repeating the same actions year in, year out, and expecting a different outcome because they are using the same processes, data, and decision-making approaches. That is not sane behavior. It’s time for a change in approach.
One of the biggest hurdles for merchandise planners is understanding the zeitgeist of each annual holiday season, and understanding it from all dimensions, from sales and marketing to finance. What will be this year’s trending toy — Furby, Barbie, or Ninja Turtles? Will pastels or bright colors dominate? Will silver trousers be the must-have apparel this season?
To grasp these fickle consumer trends, merchandisers must capture demand signals faster, then coordinate their decision-making and planning accordingly. They need tools to comprehend consumer sentiment that will help them predict where the market is heading — something beyond the capabilities of concurrent planning in spreadsheets.
Sentiment is inherently elusive, and it proves challenging to track and decode into actionable business and planning strategies. Social media significantly influences trends, but the sporadic, nebulous nature of TikTok, YouTube, and Instagram crazes makes their emergence unpredictable.
Moreover, sentiment data's unstructured nature complicates its capture and assimilation, making it difficult for retailers to extract relevant insights to capitalize on these demand signals.
Collation, curation, and collaboration
Retailers must adopt stringent data discipline, based on evidence and data captured using artificial intelligence (AI), which ensures demand signals based on real-time consumer sentiment are prioritized. Merchandisers can then curate this data in a way that makes it useful across the organization and insightful for scenario planning, which results in predictive value for managing supply chains.
To harness the full potential of the holiday season, retailers need to blend data discipline and curation with other key attributes. Frustratingly for merchandisers, trends that look like a dead cert often flop, so having flexibility and the capability to pivot planning tactics — while managing supply chains to keep pace with the market — is crucial.
The evident struggle to convert demand signals into opportunities, visible in plummeting sales by late December, highlights retailers’ ongoing challenges with connecting decision-makers in real time. By connecting the organization through a single platform where data from across the business is combined with market, social, and demand signals using cutting-edge AI, merchandisers can conduct rigorous and rapid scenario planning, and achieve decision-making based on evidence, rather than just experience.
It’s only by doing things differently that retailers can maximize the opportunity every holiday season and prevent consumers from going insane as they desperately seek to find that one last Furby in their local retail store.