Every retailer dreams of bustling quarters where stock flies off the shelves, making room for the next season’s goods. Yet, the stark reality is that many businesses are grappling with challenges that threaten their survival.
A recent report from Ernst & Young reveals a grim landscape; nearly half of FTSE retailers have issued profit warnings over the past year, with seven in just the first quarter of 2024. The Centre for Retail Research adds to the concern, noting that 61 major retailers went bust last year – a figure not seen in 17 years.
Unpacking the Retail Struggle
So, why is retail struggling? The answer lies in the very nature of the industry. Retailers face a constant battle against the clock, dealing with seasonal stock that can’t sit on shelves indefinitely. The pressure to discount unsold items to make way for new inventory is immense, and the financial toll is unsustainable. Economic volatility and unpredictable British weather only add to the turbulence, as seen in recent reports of how a rainy Spring impacted trading*.
But that’s not the only challenge. The cost of container shipping spikes regularly due to events like the Chinese New Year shutdown or the ongoing Red Sea crisis, forcing retailers to buy goods well in advance. This creates a storage problem: where to keep these items until needed?
Noel Hathorn, Head of Product at Visku shares his insight into the seasonality battle: “Seasonality is all about supply and demand. Whilst the start of a ‘season’ might be clear on a calendar there are other things, quite often the weather, that trigger consumer demand to kick in. Sometimes that means that the ‘start’ of the season’s sales can be delayed, occasionally by months. The shorter and less pronounced the season (e.g. a miserable rainy summer) the lower the demand for those seasonal goods. In the event that demand is lower than expected the retailer will be left with a surplus of unsold stock that they need to deal with. That might mean markdowns, or a deep store until next year.”
“Conversely, if the demand hits early a retailer without enough stock might sell out and be stuck waiting for more stock to arrive, consumers can be fickle and might satisfy their demand elsewhere. If the total seasons demand is higher than predicted and a retailer then tries to rush stock at a higher cost in from wherever it is manufactured, usually overseas. This can mean that they order more than they need in the first place, weighing up the cost of discounted sales against the cost of rush orders.”
“There are also micro level challenges. If the current fashion is pyjamas and you are selling onesies, then you might not achieve the sales you wanted. Then, if your stock arrives in a container that is 50:50 pyjamas and onesies, you need to unload the stock you don’t want to get to the stock you do.That unwanted stock begins to clog up your warehouse storage, and the flow of wanted goods begins to slow down because of the difficulties in the warehouse.”
“As one season finishes the next one begins. There tends to be a bit of an overlap, so if you have stock flow problems in one season there is a very good chance that it will start to have an impact on the subsequent season.”
“A lot of this seasonal product comes from abroad, and the volatility in the shipping industry alongside the volumes of activity hitting ports means that getting all of your ducks in a row is tricky, the stock needs to arrive when you are expecting it. The port also needs to have enough capacity to unload it, you need to have space to take it into your network. When these things don’t align, the container may remain at the port for some time which results in storage charges from the port, and rental charges from the container shipping company.”
Preparing for seasonality challenges
Surplus stock of seasonal products such as barbeques and lawnmowers are still more than likely to make profit the following year, but not without the storage space to keep them safe. Noel Hathorn said “Early price markdowns to clear stock are generally proven to result in better margins in the long run; however, getting it right, for both timing and price, is very challenging.”
It’s easy to consider buying more conservatively to avoid surplus stock, but this poses risk to potential revenue. Even by investing in additional warehouse space, businesses are facing eye-watering upfront costs. Although this option does come with more flexibility, more often than not, retailers are left with desolate warehouse spaces during the quieter trading periods. Noel Hathorn said “Committing to extra space to guarantee that space will not cause the bottleneck for seasonal operations can also help. However, this can come at a cost if it remains unused.”
This is where the Pallet Hotel comes into play. Businesses can secure flexible and affordable overflow warehouse spaces to store evergreen seasonal stock, which prevents the need for pricey markdowns and lost business opportunities. This gives retailers more opportunity to focus on profit margins, instead of a rush to quickly shift stock before it’s too late.
It’s common for retailers to confide in emergency storage from their 3PL partners in times of need, but this can be costly, especially during peak periods. Meanwhile, the Pallet Hotel connects businesses with a network of over 200 UK locations at a fixed cost per pallet, meaning no seasonal price increases and a method that provides retailers more flexibility than ever before.
Noel Hathorn also shared key methods for preparing for the seasons: “Better understanding the Cost to Serve can certainly help a retailer to prepare. Whilst it might be cheaper to manufacture in the Far East, by the time you have considered the total impact of minimum order quantities, transport and warehousing, as well as the subsequent agility, it might have been safer and cheaper to near-shore a product. Understanding the sensitivities of different products and the different supply and fulfilment routes may mean you make different decisions that reduce risk and improve predictability.”
“Reducing returns can also have a big impact. For online purchases, this means investing in detailed, high quality product information on your website. Customer reviews and solutions like TruFit can really help.”
However, with the Pallet Hotel, seasonality struggles can be a notion of the past.Noel said: “Visku’s Pallet Hotel is the ideal supply chain solution to the uncertainties of seasonal retail, it’s super flexible in terms of geography, volume and duration and you only pay for what you need. So whether it is stockpiling ahead of time, managing the seasonal change over, handling excess inventory when demand doesn’t hit as or when expected, or as a deep store solution at the end of the season then Pallet Hotel has you covered, providing you with peace of mind so you can concentrate on giving your customers the best experience.”
