Merchandising in Crisis: How to Reforecast When Past Data is Now Redundant?
Restricted commercial activity for the past three months has left inevitable impacts on Q1’s sales revenues. With no certainty of how long this pandemic will last, retailers will need to be proactive in assessing their financial capabilities for the following months.
Traditionally, retailers would use historical sales patterns as the basis for sales forecasting. However, in the current circumstances, past data will not suffice as there are no parallel patterns that can mirror this crisis. To mitigate further losses and stabilise trading, it is critical for retailers to re-forecast sales tailored to the current market climate.
Former Head of Merchandising at Asos and Founder of Flourish Retail, Sarah Johnson shares the key steps to re-forecast sales amid Covid-19.
Generating A Base Forecast
To form the base forecast, start by reviewing current sales performance, markdowns and run rates to identify your present business position. Economic conditions around the globe are volatile as the severity of the crisis differs by country – even possibly by state or districts. For retailers that are participating in multiple markets, it is critical to understand the local economic conditions to predict future trade performance.
With restricted cash flow as national lockdowns persist, simulate your current plan without any intervention or action to assess the full impact on sales, profit and inventory. This will be the starting point for worst-case scenario planning.
Supported by the base forecast, you will need to identify the level of sales required to achieve constant cash flow. From here, it is critical to spot what is or isn’t working in your plan. Understand which products are hurting sales and why. Validate these insights with real-time market data to benchmark performance against competitors and discern market sentiments.
By monitoring full-priced sales against discounted sales, you can gauge optimal SKU count and assortment size to drive cash flow for a particular segment or market.
Deep analysis in the pricing will also provide clues into key price points that are able to convert sales. These data insights provide you with the necessary information to predict future demand and maximise your assortment.
To plan product phasing and launches for the upcoming months, review commitment with suppliers and factories. Certain products might be disrupted due to temporary closures or material shortages.
For existing inventory, break down the range and identify which trend-led or seasonal products should be discounted immediately to protect profits. Also, consider holding a portion of these stock as some seasonal products can be reworked into the next season or even Spring/Summer ‘21. Alternatively, explore counter-seasonal product opportunities in different markets, especially those less impacted by the crisis.
At the same time, keep an eye on inventory levels. Storage capacity will be impacted by supply chain and logistics disruptions. It is likely that even with discounting, not every product can be sold, therefore, forecast a realistic write off provision for the P&L, should circumstances require it.
Adapting to Market Changes
Based on these three key considerations, you will be able to plan a re-forecast that is stressed-tested and equipped for all possible scenarios during this retail downturn. As stated by Johnson, merely relying on past performance will not be sufficient to predict future trajectory.
“Last year’s data is redundant and no longer indicative of current nor future performance. A tool like Omnilytics obviously gets data quicker and more accurately, which means merchandisers can make better-informed decisions at this crucial time.” – Sarah Johnson, former Head of Merchandising at Asos
In these treacherous market conditions where demand can evolve rapidly, it is crucial retailers stay focused on detecting these changes to act decisively. At this stage, no plan should be set in stone. Constantly review your re-forecast and test all assumptions until we start to see more conclusive patterns.
To learn more about key merchandising tactics like these and other retail strategies for Covid-19, watch the full webinar with Sarah Johnson, co-hosted with the CEO of Omnilytics, Kendrick Wong, here.
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