Why do some businesses effortlessly ride the wave of customer demand while others struggle? Because some have built a system for seasonal inventory management.
Let’s get into all you need to know about seasonal inventory: what it is, why it happens, and how it can affect your business. You can then use this information to streamline your inventory plan.
What Is Seasonal Inventory?
Seasonal inventory are any products a business stocks to meet demand during certain times of the year or for specific events. It’s characterized by its temporary nature, since it's only in high demand during specific periods.
Seasonal inventory requires careful planning and management to ensure stock levels meet customer demand during peak seasons but aren’t in excess during slower periods.
Ecommerce and brick-and-mortar businesses can benefit from preparing for seasonal trends.
When Should Seasonal Inventory be Used?
Seasonal inventory should be used for products you anticipate will experience significant fluctuations in demand based on specific seasons, holidays, events, or periods.
It is also helpful for products highly subject to industry trends, such as home renovation supplies in the spring and summer, since those are the busiest times for contractors.
Seasonal demand fluctuations most often occur due to:
- Weather and climate: Seasonal weather changes and one-time weather events, like winter versus a sudden cold snap
- Holidays and culturally significant events: Formal and informal events, like the holiday season, back-to-school, and March Madness
- Income availability: Times in the year when your customers are more likely to have more or less cash on hand, like the after-holiday lull in January and the post-tax-return boom in the spring
- Migration patterns: Seasonal influxes of people into or out of specific areas, like towns near a ski resort will see peak tourist travel in the winter and summer months
What is an Example of Seasonal Inventory?
Examples of seasonal inventory include winter clothing, swimwear, Halloween costumes, Christmas decorations, rain jackets, and ski gear. Essentially it’s any item associated with a specific season or event occurring once or twice a year.
What are the Advantages of Seasonal Inventory?
When you learn to manage seasonal sales well, customers trust your store to get what they want, and you make more money. Here's more on the pros:
- Meet customer demand: Align your inventory with what customers need when they need it. Your customer satisfaction will go up, and you can avoid the stress of stock-outs.
- Save on storage costs: If you don’t plan well for seasonal fluctuations—and order too many seasonal items—you could be spending a ton on warehousing those goods. The amount of inventory you have on hand shouldn’t overwhelm you or your budget. Seasonal inventory can help you avoid overstocking.
- Build customer trust: Customers who get what they want from your store are more likely to return. Timely and accurate order fulfillment is a must during your busy season since it gives you the opportunity to leave a great impression on a lot of customers.
- Maximize sales: Use peak demand to sell more products and turn over your inventory faster.
- Maximize profit margins: If customers really need a product—and retailers only get it during a specific time—you may be able to price it higher than you would a normal product. You can also use promotional offers to attract customers and drive sales.
- Outshine the competition: When you do a better job managing seasonal demand than your competitors, customers notice. After all, they need the product at that time—not earlier or later. So, when an out-of-stock product at your competitor’s business is in stock at yours, you’re in a great position to build an even stronger customer base.
And, of course, the skills you build by managing seasonal inventory make you better at managing your entire inventory throughout the year.
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What are the Challenges of Inventory Planning?
Small business owners can face several difficulties when planning out inventory, not the least of which are:
- Staffing issues: You’ll most likely need to staff up to meet the spike in demand, which means finding candidates, interviewing them, and hiring them.
- The need for accurate current and historical sales data: This info will help you build a plan and figure out exactly how much extra inventory you should order. It can be a struggle to collect and properly analyze it. Many small businesses are focused on fulfilling orders rather than analyzing their finances.
- Possible supply chain disruptions: These could occur at any time of year but are more likely when everyone is ordering more goods to meet seasonal demand.
- Sudden changes in consumer behavior: You never know when consumers might put their attention elsewhere, and if you’ve ordered a ton of inventory expecting demand to spike—and it doesn’t—you could be stuck.
So, you’ll need an inventory plan that can respond to changes in your outside environment and work for your business structure (and budget). No small feat—but absolutely necessary.
Let’s talk about how you do that.
How To Deal with Seasonal Inventory in 5 Steps
Here are the five foundational elements for managing your inventory and building a sound seasonal plan:
1. Analyze Historical Sales Data
Historical sales analysis looks at data from previous seasons to identify patterns and trends. These metrics help you predict future demand accurately and adjust inventory levels accordingly. You can use it to shape your purchasing decisions to those patterns and for other business purposes, like cash forecasting.
It also serves as a valuable feedback loop by creating benchmarks based on past inventory management strategies, promotional campaigns, or pricing tactics.
By identifying strengths, weaknesses, and areas for improvement, businesses can refine their plan and make data-driven decisions.
2. Use Demand Forecasting
Demand forecasting uses statistics to estimate the demand for your products during seasonal periods. You can use it to optimize production schedules, staffing levels, or supply chain logistics to meet peak season requirements.
Demand forecasting takes into account:
- Historical data
- Current inventory
- Open orders
- Sales velocity
- Target inventory turnover
There are dozens of tools available to simplify and even automate your forecasting process, but basic spreadsheet applications work too. The main thing is to ensure you’re using the right data and the right formulas to create your order plan.
Still a little lost? Consider working with a CPA or getting some great software for your inventory management system. It’s better to spend some time and money upfront to get it right rather than finding out later you have too much—or too little—stock on hand.
3. Get the Right Inventory Management Software
There are some great inventory management software platforms out there. You’ll ideally want one that has a tone of automation—like updating your inventory levels and shipping statuses in real-time.
Some can even do sales forecasting and other analyses on your behalf. That way, you’ll always be working with accurate numbers and have some foundational intel.
4. Nail Down the Right Timing
You can create a seasonal plan by incorporating what you’ve learned in analyzing historical trends and forecasting demand. Your plan should include a few essential pieces of information:
- Ordering dates, quantities, and delivery times
- Scheduling and staffing plans to accommodate seasonal stock
- Dates and times to track activity, evaluate processes, and adjust your plan
For any schedule, make sure lead times are realistic. The last thing you need is to be scrambling last minute as a ton of orders are coming in.
5. Collaborate with your Suppliers
If you want to take your plan to the next level, collaborate with your suppliers. They can ensure you get products on time, and you can replenish your inventory as needed throughout its peak season.
Give your vendors a ton of lead time and check in to see how their stock levels are. What's more, it's important to foster great relationships with your vendors by always paying your bills on time and responding to their requests in a friendly, timely fashion. This will make it easier for them to work with you, which should help you get what you need, when you need it.
The Key to Seasonal Success: Continual Improvement
Seasonal inventory management done well first requires a deep understanding of the strengths and weaknesses of your business, market, and team. Then, you must leverage the inventory management methods, tools, and tactics that best align with your circumstances.
And the key to success for seasonal products lies in this final piece: creating a system and culture that is made for and values continual improvement.
No system is perfect or perfect forever. But one that builds review time into the process and expects change will always be better than one that doesn’t.