By Michael Keenan
Inventory Management
October 24, 2023
Reading time: 14 minutes
What is Seasonal Inventory?
Seasonal inventory refers to products that are sold in greater quantities during specific times of the year. Demand for these products changes due to weather, events, and holidays.
Challenges of Seasonal Inventory
Some challenges faced by seasonal inventory include unsold inventory, stockouts, and storage issues.
Unsold Inventory
Unsold inventory is one of the biggest challenges in seasonal inventory. The term unsold inventory refers to the stock that you cannot sell. It represents a significant loss of revenue for sellers.
This is particularly problematic in the case of seasonal inventory. Retailers stock up on products in anticipation of future demand. If the demand is not met, they are left with excess goods that may sometimes be unsellable.
For example, a retailer may have a lot of leftover Halloween merchandise after October 31. How will they dispose of all that stuff?
Unsold inventory can be dealt with in several ways, but none of them are ideal. Retailers can attempt to sell items at a discount, but this usually does not make up for the loss in revenue. They can donate items to charities, but that is not always practical. Someone has to deliver them, or someone has to pick them up. They could simply throw the items away, which is not a sustainable solution for businesses.
Thus, managing seasonal inventory requires accurate demand forecasting, as large quantities of inventory can become outdated. Additionally, holding costs can accumulate if inventory does not sell as expected.
Stockouts
The opposite situation, stockouts, is also a problem. Stockouts occur when a product is unavailable for purchase because it has been completely sold out. Stockouts cost retailers in North America over $300 billion annually.
Companies use seasonal inventory to accumulate stock during periods of low demand and store it for periods of high demand. If future demand exceeds the amount of product stocked, you can easily run out of stock.
Storage Issues
Another area where seasonal inventory can be a challenge for retailers is storage. Seasonal products take up valuable space in warehouses and stores, and if not managed properly, they can lead to cost and handling issues.
The big question for most retailers is how much inventory to stock. They need to weigh the additional costs of storing seasonal inventory against the cost of meeting demand fluctuations.
Examples of Seasonal Inventory
For most businesses, demand for inventory changes with the changing seasons; it can be anything from clothing to household goods and beyond. Here are some common examples of seasonal inventory:
Holiday Seasonal Inventory
Your first thought about seasonal inventory might be products related to holidays. Christmas, Halloween, and holiday weekends are examples of seasonal inventory. They all have specific items that consumers buy only during the holiday season.
Summer or Winter Clothing
For clothing retailers, summer or winter clothes are a core example of seasonal inventory.
Depending on the region you operate in, summer may be the busiest season due to warm weather and holidays. In the summer, people tend to buy more swimwear, shorts, and t-shirts. Cold weather in winter may lead to lower sales, but people will need to buy coats, hats, and gloves.
Event Seasonal Inventory
Event seasonal inventory relates to specific events like the Super Bowl or the Fourth of July. This can include things like kitchen supplies, decorations, and apparel such as hats, t-shirts, beer mugs, and flags.
Methods
Seasonal Inventory Management
Let’s take a look at some inventory management techniques available for handling seasonal inventory.
Just-in-Time Inventory
Just-in-time inventory is a system where inventory is received only when needed in small quantities. It’s a way to reduce holding costs and unsold inventory.
There are some drawbacks to using just-in-time inventory for seasonal stock. It is ideal for companies with stable demand and predictable supply chains, but if you order from a supplier who doesn’t have available stock, or has long lead times, you will run out of inventory. For this reason, traders typically order seasonal stock in advance.
However, just-in-time inventory is good for traders who have a solid forecasting system in place. If you can accurately forecast demand, you can reduce costs and improve efficiency using just-in-time inventory.
First In, First Out
First in, first out is a common method for valuing inventory. Using first in, first out, the first items received are sold first. First in, first out provides accurate inventory levels because it takes into account everything you hold in stock, not just the most recently received items.
First in, first out is ideal for traders who sell perishable goods or seasonal products like clothing. However, it can be challenging to implement if you have many SKUs or products with differing shelf lives.
Last In, First Out
Last in, first out assumes that the inventory you purchased most recently is sold first.
If you paid a premium for inventory from a supplier due to seasonal demand, last in, first out helps recoup the higher cost by selling that inventory first. Last in, first out is ideal if you’re selling non-perishable products, as older stock can remain in the warehouse longer.
ABC Analysis
The ABC analysis model prioritizes products based on their value by categorizing inventory into three classes: A, B, and C.
Class A: high-value products that generate the most profit.
Class B: medium-tier products with moderate sales velocity.
Class C: products that sell quickly but do not generate much profit.
Running an ABC analysis can save money by prioritizing inventory purchases and selling old stock before it becomes worthless. It can also help you track your most important assets and prevent them from becoming obsolete during the season.
Seasonal Item Order Quantity
There are four main influences on demand for seasonal inventory: weather, culture, holidays, and migration and travel income. Let’s explore each one:
Weather
When you think of seasons, you think of weather, and weather plays a clear role in the demand for seasonal inventory. In some climate regions, there is never a need for snow equipment because it never snows, and there is always a need for beach towels. In regions with more distinct seasons, the time of year and weather will dictate the goods that customers feel compelled to buy and therefore the products you can successfully promote.
Culture and Holidays
Culture and important holidays significantly impact demand for seasonal inventory, so it’s wise to be prepared. Whether it’s Christmas, Thanksgiving, or the Fourth of July, certain products tend to be more popular at specific cultural times of the year.
Migration
Travel
Summer vacations are the obvious time to pay attention when thinking about preparing for migration and travel, but with lower prices and less congestion, many Americans love winter holidays just as much. So pack up the hats, gloves, and scarves when the time is right.
Discretionary Income
Of course, there are numerous factors that affect discretionary income, and shopping budgets can be difficult to predict from person to person. However, certain times of the year may lead to an increase in income, such as the end of the tax season when people receive their refunds. This can help boost sales of some luxury items, for example.
Tips for Improving Seasonal Inventory Management
With seasonal inventory, the sales period is limited, and once the season is over, it can be challenging to get rid of the remaining stock. Let’s take a look at some ways to enhance seasonal inventory management so you can meet demand and increase sales.
Leveraging Historical Data for Forecasting
One of the best ways to improve forecasting is to look at previous sales patterns. This way, you can better understand what customers are likely to buy and when they will buy it. You can use this information to adjust inventory levels accordingly.
Retailers use inventory management software to collect and analyze data for forecasting. Gouad Nasri, a professor at the Desautels Faculty of Management at McGill University, suggests, “The more you know about your demand, the less uncertain you will be about it. This means you can better manage your inventory and lower stock levels in your warehouses, as maintaining inventory costs money.” This should also be done at the category and product level.
You can use two methods for planning seasonal demand:
1. Sales Forecasting. Use historical revenue figures to forecast future sales. For example, if you compare summer sales over the past three years, you may find that they average 25% of the sales volume you had at the beginning of the year. It can be safely assumed that this will happen again this year.
2. Seasonal Trends. Some products are more popular than others throughout the year. Anticipate seasonal shifts using Google Trends to show fluctuations in interest. You can see in the chart below that searches for “swimwear” rise around May-June when people are preparing for summer.
By forecasting seasonal demand, you will understand exactly how much product should be in stock during those months. By using data from your inventory management system, you can enhance your chances of accurately forecasting demand, avoiding overstocking, and minimizing stockouts.
Running Pre-Sales
One way to evaluate the commercial viability of seasonal items is to run pre-sales. It’s a tactic used by Meredith Diu, owner of the Wild Melon clothing brand, to assess season trends.
She explains, “I find that the biggest challenge with seasonal inventory is ensuring that you have enough for everyone who wants it, but without being stuck with anything after the holiday. Once the product becomes out of season, it can be hard to sell without significant discounts.”
She continued, “One way I manage seasonal inventory is by offering pre-sale events. This allows me to get cash flow before investing in inventory and shows me what customers are most interested in buying. Then I allocate my seasonal inventory based on what was purchased in the pre-sale.”
Linking Complementary Products
Linking complementary products is an effective way to improve seasonal inventory management. According to a study by Harvard Business School, bundling products can be an effective way to increase sales.
It found
The study indicates that when the gaming company Nintendo combined two products, over 100,000 units were sold and more than a million dollars in video game sales were achieved.
Ideally, you want to finish your season with consolidated sales. These promotions can help move inventory efficiently, reduce storage costs, and minimize unsellable products.
Slow-Moving Inventory Discount
Slow-moving inventory drains a company’s resources. In addition to tying up working capital, it takes valuable storage space and can lead to stockouts.
If inventory is moving slowly, discounts can help improve seasonal inventory management, but they must be used cautiously. If discounts are used improperly, they can lead to margin erosion and brand damage.
Brian Lim, CEO and founder of iHeartRaves, says, “One way to improve seasonal inventory management is to offer discounts or promotions on slow-selling items to clear excess stock before it becomes worthless.”
Consider International Markets
Another way to manage seasonal inventory is to sell products internationally. Seasons in the Northern Hemisphere are opposite those in the Southern Hemisphere. In Australia, winter begins in June, while American consumers are gearing up for the beach and buying swimwear.
Merchants can take advantage of these seasonal patterns. For example, if you are a sports supplier in the U.S. and want to clear out skis and snowboards in April, instead of discounting everything and losing profit, you could start promoting those products to customers in Australia, New Zealand, or Argentina.
When selling products internationally, you must consider shipping costs, customs regulations, and language barriers. However, with research and planning ahead, you can successfully sell your products in global markets.
Closely Monitor Inventory Metrics
Staying informed about inventory levels is critical for seasonal inventory management. This includes:
1. Inventory Turnover. This indicates how quickly products are restocked compared to how fast they sell. Low inventory turnover means you have too much stock, which indicates low sales.
2. Days Sales of Inventory. This measures the average number of days it takes to sell inventory. A high DSI indicates you are either not managing inventory properly or that your inventory is hard to sell.
3. Average Inventory Levels. This estimates the number of units available in inventory over a specified time period. You want your average inventory levels to align with average seasonal sales.
4. Total Stockouts. Multiple stockout occurrences during the season indicate poor forecasting and increased demand requirements.
Stephen Bogdan, founder of the e-commerce growth agency FirstPier, recommends monitoring your inventory levels throughout the year to plan for seasonal demand. “You want to keep enough inventory to meet demand, but not so much that you have excessive leftovers at the end of the season.”
He adds, “Don’t worry about low inventory levels, especially if you can restock your products quickly. Pay attention to any unexpected drops in your daily sales and inventory levels. The fact that these are items your loyal customers expect from you will also help identify the profitable customers to whom you should continue selling your seasonal products alongside your seasonal items.”
Bogdan recommends that merchants invest in automation for managing seasonal demand. “It’s easy to see your inventory levels every day thanks to a reliable point-of-sale system. It automatically records each sale and updates inventory data in real-time.”
Simplifying
Fulfillment
Fulfillment refers to the gathering and shipping of customer orders. Merchants prioritize fulfillment as it affects customer satisfaction and overall profits. If you cannot effectively meet orders, you will struggle to sell any products.
Merchants can streamline fulfillment in several innovative ways, including:
1. Buy online and pick up in-store. 50% of online shoppers use buy online and pick up in-store. It’s a popular option for many, especially during the holiday season. Buy online and pick up in-store saves people time and money compared to ordering by mail.
2. Local pickup. A good option for businesses with multiple locations. Customers can order items online and then pick them up at a location near them.
3. Local delivery. A good method for businesses in rural areas or that sell hard-to-ship products. Customers can order items online and then have them delivered to their home by a member of your team.
4. Automation. Some tasks are easy to repeat and can be made faster and more efficient through automation. You can use an app like Shopify Flow to create custom automated workflows. You can create unique workflows and link apps together to complete more tasks.
Dustin Croft, Principal and Chief Designer at Kroft, says, “Our store’s design removes a lot of constraints related to larger items. With in-store pickup, we can design and sell a series of products that don’t need to be shipped to California, helping us achieve greater efficiency in fulfilling our orders for larger, more expensive items.”
Improving Seasonal Inventory Management
Managing seasonal inventory can be challenging. If you order a large quantity of inventory in advance, you’ll be stuck with unsellable products throughout the year. If you don’t order enough of the product, you’ll face stockouts and disappointed customers.
By following the above tips, you can create a system for your shop that helps you fulfill customer orders and increase sales during peak periods.
Research and additional content by Alexis Damen.
Frequently Asked Questions about Seasonal Inventory
What is an example of seasonal inventory?
Seasonal inventory is any type of inventory that is needed or sold more frequently during certain times of the year. Examples of seasonal inventory include winter coats, swimwear, holiday decorations, and outdoor furniture.
How do you handle seasonal inventory?
Plan for seasonal inventory management: Before the season starts, create a plan that outlines how you will manage seasonal inventory. This plan should include the quantity of inventory you need to purchase, how you will store the inventory, and how you will handle excess inventory.
Take advantage of pre-season sales: Many stores offer discounts on seasonal items during the pre-season period. Capitalizing on these sales can help save money and reduce the amount of inventory you need to purchase during the busy season.
Monitor inventory levels: Ensure that you regularly monitor inventory levels to ensure sufficient stock is available to meet customer demand.
Use predictive analytics: Utilize predictive analytics to help forecast customer demand and ensure you have an appropriate amount of inventory available.
Use drop shipping: Drop shipping may be a good option to help manage seasonal inventory. This can save you money and reduce the quantity of inventory you need to purchase and store.
What does seasonal product mean?
Seasonal products are products that are only available for a limited time, usually during a certain time of year. They may be associated with a specific holiday, special event, or change in climate. Examples of seasonal products include winter coats, swimwear, holiday decorations, and pumpkin-spiced coffee.
How
Does seasonal inventory affect the supply chain?
Seasonal inventory can significantly impact the supply chain in several ways. For example, it can lead to increased demand for certain goods, which can strain suppliers’ production capacity and increase costs. It may also require additional storage capacity and transportation resources.
Source: https://www.shopify.com/retail/seasonal-inventory
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