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GUEST COMMENT Why Christmas preparations are beginning now for retail supply chains

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Bryan Palma is industry and solutions director at Kinaxis

While the sight of Christmas-related product promotions in the summer season can provoke mixed feelings among consumers, retailers must plan now to ensure that gifts can be made available for purchase in the run-up to the festive period. While Covid-19 lockdowns are largely over for most countries, other variants, along with soaring inflation rates, economic volatility, sector strikes and the war in Ukraine have all brought turbulence to global supply chains.

Christmas 2022 looks set to be no different to recent years when it comes to navigating unprecedented disruption, with trade association Logistics UK predicting continued uncertain conditions for the rest of the year. Moreover, consumer mindset shifts and emerging cost pressures are creating new problems.

Consumer perceptions

The difference this year is that consumers have become accustomed to low stock, and as a result it’s likely that they’ll be spending more time online waiting for the most in-demand products to become available for fear of missing out on the hottest items. With demand at an all-time high for potentially low numbers of product, ensuring these items are readily available is key.

Data insights are a good place to start when predicting where demand will lie. There’s now a good amount of information from 2021 and 2020 that should help inform forecasting models and predictions of the future. It’s likely that many retailers are using statistical modelling for forecasting, rather than sophisticated machine learning, and will lead to more inaccurate predictions. AI-driven demand forecasting with machine learning will allow retailers to build a data-driven plan that takes consumer trends into account.

Beyond the leveraging of machine learning solutions, retailers must also look towards social sentiment in 2022. Now, if a certain product is being heavily promoted by an online influencer for example, it pays for retailers to take note as it may prove to be a strong demand signal.

Keeping costs down

Alongside ensuring that in-demand products can be accessible to consumers, retailers are likely to be buying goods at higher prices due to increased manufacturing costs. Passing these costs on to the consumer, while sometimes necessary, is something they want to understandably avoid, but remaining profitable is also crucial. Retailers will need to strategically look at where prices should be lowered, which should remain the same and which items should be subject to an increase.

For example, it may be that premium products need to either stay at that higher price or even be made a little bit more expensive in order to offset a reduction in price of a lower tier or private label brand. This is critical as these lower tier brands are likely to witness an uptick in demand as the cost-of-living crisis continues to squeeze the expendable income of consumers.

Generally, lower tier or private label items tend to have higher margins, but they’re also important in dictating value perception among shoppers. With all eyes on retail offerings in the run up to the festive period, working with the supply chain to keep these items as affordable as possible is a top priority. Many retailers are also likely to have overstock in place from last year, and now is the time to promote these across the channels in order to boost sales.

While consumer demand will take much of the attention of retailers, it’s also important that they don’t forget the sustainability associated with products bought from manufacturers. 40% of consumers choose brands that have environmentally sustainable practices/values, according to the Sustainability & Consumer Behaviour 2022 report by Deloitte UK. Retailers must be conscious of this and communicate with manufacturers about minimisation of impact to the environment as products are brought in ahead of the festive season.

Planning for the long-term

With practical actions and supporting technology playing a role in retailers preparing for this Christmas, plans also need to be put in place for the festive period in 2023. Many toys, for example, are manufactured overseas and have very long lead times. Retailers will need to make informed decisions about which merchandise to bring in, which may be tied to a TV show or popular film series, ahead of next year and beyond. With many of these products manufactured in China, the easing of lockdowns in the country presents an opportunity for retailers to make deals with manufacturers ahead of time.

The last few years have left retailers wishing they had a crystal ball to be able to look ahead and pivot their operations in anticipation. While it may not be possible to know exactly what’s round the corner, supporting technology can enable them to make the most accurate predictions and work with their supply chains to anticipate demand changes and factor in any external challenges. At the core of this capability is effective use of data with machine learning, which is simply not being used to its full potential in the industry. Those that adopt the right solutions can immediately plan for this Christmas and beyond.

Bryan Palma is industry and solutions director at Kinaxis

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