For retailers across the country, the holiday peak season that runs from November through early January serves as their Super Bowl, World Series, Final Four and Stanley Cup all rolled into one…and when you look at the revenue generated during this six-to-eight week period at year’s end, it’s easy to see why.
The National Retail Federation reported during the 2016 peak season, U.S. retailers took in “$658.3 billion, exceeding NRF’s forecast of $655.8 billion.” In spite of reports that the holiday peak season was cooling off, the sum represented a four percent increase over 2015 and accounted for an average of 20-30 percent of retailers’ total sales for the year.
Much like planning for the Super Bowl and other major events, there is a litany of moving parts that need to line up correctly:
- Customer service and fulfillment must be adequately staffed, trained and ready to deliver
- Inventory forecasting to reduce risk of lost sales and cost overruns
- Plans guarding against overstocks and out-of-stocks must be developed
- Fraud detection systems need to be upgraded
According to Gartner, customers who have the best experiences with your brand spend 2.5 times as much as those who do not; which means your brand must be prepared to perform flawlessly in all of these areas during peak…because in today’s Amazon-dominated world, flawless execution is precisely what customers expect.
For this reason, retailers look at peak season like a war room that is open from January of this year to January of next year. However, more important than the time spent on peak season is the need to make the right choices throughout the year to remain operational. As Forbes reported following the New England Patriots’ come-from-behind victory in Super Bowl LI, “Make no mistake about it: ’No days off’ for the Patriots has less to do with scheduling than with strategizing. Actually, it has to do with a style of thinking and learning that inspires strategy…”
When it comes to strategies, this should be your game plan for “Retail’s Super Bowl”:
A team is only as good as its weakest player, so a strong seasonal workforce is paramount to success…but increasing staff size up to 400 percent for peak is no easy task. Not only can it be challenging to even find that many seasonal workers, it also requires ‘stress tests’ throughout the year to ensure facilities, teams, and processes can handle the scale-up at peak. Trend analysis on the market is also key to understand how changes to government subsidies might impact labor. Many retailers also run promotions to create “mini-peaks” throughout the year (e.g., Amazon’s Prime Day). These provide preparation and experience for holiday peak.
Working with a partner who can supply workers and manage human resources for optimal cost efficiency can mean the labor you need is available when and where it’s needed most. Optimizing labor at scale is a capability small to mid-sized retailers don’t often have, but one that delivers measurable benefit in terms of efficient and cost effective scaling on demand. That’s why working with partners that are experts in scaling for peak, and employ a flexible and multi-skilled labor force that’s able to meet any needs that arise, can make all the difference between meeting peak labor demands and playing a failing game of catch-up.
Preparing the Playbook
While a football team arms itself with plays, retailers ready themselves with merchandise to succeed at their game. This places a strong emphasis upon usually bland issues – inventory and allocation. A GT Nexus survey conducted in 2015 showed a whopping 63% of U.S. adults had experienced an out-of-stock product online in the year prior. The study also demonstrated just how badly out-of-stock kills customer loyalty as 65 percent of frustrated online shoppers became lost sales.
While retail managers may strive to ensure that every step of the process works flawlessly at all times of year, the high volume of holiday shopping brings a unique set of challenges you can’t afford to get wrong. This is especially true as it relates to placed orders, and how retailers fulfill and service those orders.
Just as a good coach knows he cannot run the same plays every game, you must prepare to diverge from the rules of fulfillment. They may have worked in the past, but you need to anticipate what will work 10 minutes into the future to prepare for peak season.
The kind of technology infrastructure and automated transportation – using machine learning, data science, and technical expertise – that prepares you for inventory and fulfillment issues is neither cheap, nor easy. However, if you can’t get these plans into place, you face lost sales and cost overruns. If you’re a small to mid-size retailer, your best bet may be to seek a partner who can provide these capabilities to you and scale them according to your needs at any given time.
Few things in football derail a team’s success than turning over possession via a fumble or interception. Similarly, in retail, you never want to leave money on the table, but some retailers are actually throwing it away with both hands during peak. Here’s the reason why: the ghost economy.
Simply put, the ghost economy is the cost of overstocks, out-of-stocks, and returns. Whether you want to believe in it or not, the total global cost of the ghost economy in 2014 was $1.75 trillion out of a $14.5 trillion global retail economy. That translates into an average revenue loss for U.S. retailers of 4.1 percent. Much of this can be attributed to a greater focus on marketing, sales, and advertising than on the impact of inefficiencies on the bottom line, and what might be perceived as unavoidable ‘cost of doing business’ issues, but why would you drive demand only to disappoint the customer?
There is no quicker way to simultaneously diminish brand value, lose customer loyalty, expose consumers to competitive brands, and miss revenue goals than to suffer from stock-outs. Overwhelmingly, consumers blame retailers directly for stock outages and don’t take into consideration issues like strikes or increased demand.
Through intelligent inventory allocation and optimization – which includes demand forecasting, inventory plans, intelligent order brokering, and setting thresholds for recommended transfers between fulfillment centers and retail locations – retailers can minimize overstocks and out-of-stocks to recoup 50% 75% of these losses. Doing so, however, requires changing the way you view operations and embracing a willingness to let go of the status quo. If you can’t get these plans – and the technology necessary to make them work – into place, you face lost sales and cost overruns.
Preparing the Defense
When a team gets fooled on defense, its opponent scores and you lose the game. For retailers, the ones trying to fool you are those who place fraudulent orders. Fraud is growing significantly – fraud attacks have doubled over the past year. It has become big business, and just like football offenses, its practitioners are becoming more sophisticated, tenacious, and dangerous. In short, fraudsters are better at their game than they were last peak season. Moreover, assuming that fraudsters will go away after a single attack is akin to an ostrich burying its head in the sand.
You can’t always know what the fraudsters will do. Unlike inventory, fulfillment, and labor needs, fraud is an element you cannot anticipate because it is not driven by market forces or other impersonal events, but by actual people who are plotting against you with the intent to inflict harm upon your business. At peak, more than ever before, you need to know that you have a team not only blocking current fraud attempts, but also detecting new fraud trends and proactively blocking them before they affect your business.
You need to recognize this, and take the steps necessary to stop fraud while maximizing positive payment approvals. Retailers often find this difficult, if not impossible, to handle in-house. You need a fraud partner that’s a cutting-edge expert with the technology, processes, and people who will manage your fraud protection for you in its entirety, while guaranteeing your liability for fraud is zero.
In all the hustle, stress, and anxiety that accompanies peak every year, small to mid-sized retailers often can’t account for all resources expended during the rush. But things like the $1.75 trillion ghost economy are clear proof of just how big problems are. Retailers bleed money everywhere due to inefficiencies, operational waste, missed opportunities, and mistakes.
A head coach cannot win the Super Bowl on his own. He calls upon the help of many well-seasoned, experienced partners, including assistant coaches, scouts, players, and others. In retail, and especially at peak season, the reality is, you really can’t prepare on your own for all the problems you will encounter.
Leveraging the right partners who have the expertise, technology, and resources can help you reduce your losses and fill in the symptomatic gaps small to mid-sized retailers struggle with not only during peak, but also year round. Selecting the right partner to handle complex backend operations so you remain lean, nimble, and profitable – not only during peak, but throughout the year—is a winning game plan…after all, not every retailer has a “Tom Brady” on his or her team.
Steven Birdsall is Executive Vice President and Chief Revenue Officer