Most retailers instinctively know that allocation planning is important. Retail is all about getting the right product to the person at the right price via the right channel. Therefore, where that perfect product is physically for that perfect customer becomes the obsession of an allocation planner.
Here are the factors allocators must consider and how allocation fits into the overall retail strategy:
Let’s say that you’re a DTC brand with just one warehouse. Allocation, the function of getting your product to your warehouse to fulfill orders placed online, is fairly straightforward and doesn’t differ much from overall merchandise planning best practices.
Most successful DTC brands quickly discover that in order to continue increasing revenue and maintain rapid growth, they must expand beyond an online store into additional channels. Some retailers choose to expand into wholesale options or marketplaces. Others begin experimenting with pop-up stores or a single brick and mortar location. Either way, what was once straightforward allocation can quickly splinter into complex inventory management.
With any form of expansion, we see the following allocation considerations become critical:
Although these questions may seem like common sense, failing to invest time, energy, and resources into answering them, then crafting scenarios and building out forecasting, costs retailers millions in lost sales and margins.
When allocators are given the right data, tools, and time they can ensure inventory levels are high enough to not miss a sale – but low enough to not cause a glut and require heavy discounting.
As you can imagine, the complexity and time to answer these questions expands dramatically as you go from one location to two, to 10, or from one warehouse, to two and then five, and so on.
Merchandise planning and allocation live in three states: hindsight, in-season and pre-season. Said differently, planners and allocators set out to understand what did happen, what is happening, and what will happen.
In the same way that planners provide insight into overall product and channel performance and strategies, allocators give insights into performance at the store level and how that will trend over time. Allocators help merchants understand when goods should be delivered to what stores (or clusters of) at what time. For core products, this is a fairly straightforward exercise in forecasting using previous sales history. What did happen and what should we do next to respond?
Far more critical and impactful, allocators can also help identify product potential based on demographics. For new products, they can help identify where those goods will likely sell best. This knowledge facilitates tiering the buys to specific stores to meet customer demand, and also to save on receipt costs.
Finally, allocators also serve a critical weekly need to understand what is happening. Empowered with real-time data, allocators can identify merchandise out-of-stocks and overstock to reallocate inventory appropriately. This becomes even more important when we consider the last big component of brick and mortar locations: capacity.
When planners and merchants buy products 3-12 months ahead of time (this lead time varies by brand, product type, and country of origin), they do not typically constrain plans for capacity. Stated plainly, if there is potential to do more sales and they need to buy more inventory to do it, the business will find a way to get more warehouse space. However, stores do have a capacity limit. From the storeroom to their floor space, stores can only hold what their footprint allows.
Allocators must not only be aware of store capacity, but also of variations in turn requirements. Stores must turn faster than warehouses, due to capacity restrictions. The longer a product sits on a store shelf not selling, the greater the risk becomes that you could have replaced it with something that would have sold. Adding to the pressure of this delicate balance, some stores in major cities, like New York City or Los Angeles, have higher rent and less storefront and space. This increases the stakes for allocators, as they must ensure faster turn and in-tune (often higher priced) assortments for customers. No physical store visit can be wasted!
Allocation is a highly detailed/logistical process and is highly dependent on efficiency and analytical skills. Getting the right product to the right place at the right time for your customer is easier said than done, but when allocators are empowered with real-time data and the right tooling, they can help businesses achieve even the loftiest of growth goals while reducing expenses.
Furthermore, Toolio’s partnership with Ryder E-commerce by Whiplash ensures that a tidy warehouse feeds into seamless e-commerce and retail fulfillment. Toolio manages merchandise, item, and assortment planning all in one place by automating critical workflows and providing real-time insights, ensuring that Ryder E-commerce by Whiplash customers are always equipped with the right inventory assortment needed to fulfill orders and minimize excess inventory and margin loss. Check out the Toolio + Ryder E-commerce by Whiplash partnership here.