Mitigating Seasonal Retail Risk Through Proactive Planning - Episode Hero Image

Mitigating Seasonal Retail Risk Through Proactive Planning

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Original Title: Seasonal Retail: How to Win Big Without Taking Big Hits

TL;DR

  • Seasonal retail opportunities can mask significant margin erosion due to retailer-shifted inventory risk and aggressive markdown strategies, requiring brands to meticulously plan for discounts before shipping.
  • "Pay on Scan" terms can be misleading, as retailers may shift inventory risk back to the brand, necessitating careful cash flow management to cover extended payment cycles.
  • Over-ordering for seasonal demand, even with a large initial order, can lead to substantial financial losses from unsellable inventory and potential disposal costs.
  • Brands must develop robust forecasting and inventory management strategies, aiming for faster-moving stores to sell out while slower stores carry minimal excess stock.
  • Unexpected market shifts, like negative publicity or changing consumer preferences, can decimate seasonal sales, underscoring the need for "wild card" scenario planning.
  • Seasonal businesses require significant upfront capital and long lead times for manufacturing and shipping, demanding careful financial planning and potential lending.
  • Even successful seasonal products should be evaluated for year-round potential to mitigate risk and create consistent revenue streams beyond peak demand periods.

Deep Dive

Seasonal retail opportunities offer significant growth potential but carry substantial risks that can erode margins if not meticulously managed. Successful navigation requires understanding the inherent inventory, timing, and cash flow challenges, as retailers often shift the majority of risk back to the brand. This briefing outlines the core mechanics of "in-and-out" retail and the critical planning required to capitalize on seasonal demand without jeopardizing profitability.

The primary challenge with seasonal retail lies in matching inventory levels and cash flow to fluctuating demand and payment cycles. Retailers, seeking to minimize their own risk, often over-order, leaving brands with the burden of unsold inventory. This is particularly acute for products with short shelf lives or specific date-stamped packaging, such as "Christmas 25" items, which become unsellable after the season. The inherent unpredictability of consumer demand, coupled with potential media-driven shifts in product perception (e.g., a study questioning the safety of a popular product), creates "wild card" scenarios that can drastically impact sales and necessitate robust contingency planning. Brands must forecast demand realistically, understanding that a large order does not guarantee sales and can lead to significant returns or write-offs, impacting cash flow for months. For instance, a company might ship products in September for a holiday season, but not receive payment until November or December, creating a substantial cash deficit that requires careful management and potentially external financing.

To mitigate these risks, brands must adopt rigorous planning methodologies, such as the "three Ps and a W" framework: Possible, Preferable, Probable, and Wild Card scenarios. This exercise forces a realistic assessment of potential outcomes, including best-case (everything goes right, stressing supply chains and financing), worst-case (significant unsold inventory, financial strain), and most likely scenarios. Crucially, brands must also prepare for "wild card" events, both positive (e.g., unexpected endorsement leading to stockouts) and negative (e.g., negative press causing sales collapse). This forward-looking approach, akin to the practice of Stoic philosophy's "premeditatio malorum" (premeditation of evils), helps brands build resilience and contingency plans. Furthermore, understanding the retail calendar, often informed by industry events like ECRM meetings, is vital for timely pitching and production. Brands should also explore strategies to extend product seasonality or transition seasonal items into year-round offerings, thereby de-risking their business model and unlocking additional revenue streams.

Ultimately, successful engagement with seasonal retail demands a proactive, data-driven approach to inventory management, financial planning, and risk assessment. Brands that meticulously analyze potential outcomes, establish clear contingency plans, and strategically manage their product lifecycle are best positioned to leverage seasonal opportunities for sustainable growth without incurring unsustainable financial hits.

Action Items

  • Analyze seasonal sales data: Identify 3-5 product categories with highest inventory risk and potential for retailer pushback.
  • Draft markdown strategy: Define tiered discount percentages (e.g., 25%, 50%, 75%) for 3-5 seasonal product lines to mitigate end-of-season losses.
  • Develop "3 Ps and a W" planning model: Chart possible, preferable, probable, and wildcard scenarios for 2-3 key seasonal product launches.
  • Evaluate supply chain lead times: Assess current manufacturing and shipping durations against 6-month seasonal product cycles for 3-5 core SKUs.
  • Create seasonal risk assessment framework: Document potential cash flow impacts and lending needs for 3-5 seasonal product opportunities.

Related Episodes

Key Quotes

"The conversation we're going to have today is about seasonal now when we say seasonal i think people's minds immediately go to christmas but there is but there are many seasons in retail yes okay i'm going to give you some examples seasons in retail um super bowl is a retail season valentine's day is a retail season memorial day is a season fourth of july is a season labor day halloween thanksgiving christmas new year's and then you just have seasonal so when i say seasonal we're thinking stuff like sun care or hand warmers so when we say seasonal all of these different things can be seasonal but what we're really talking about is in and out retail right so we're not talking about how to strategize for your product in different seasons we're literally talking about in and out opportunities and how those are managed and how those are obtained right"

Mark Young explains that "seasonal" in retail encompasses more than just Christmas, including holidays like the Super Bowl, Valentine's Day, and even product categories like sun care or hand warmers. He clarifies that the focus is on "in and out" opportunities, which are distinct from ongoing seasonal product strategies. This highlights the broad applicability of seasonal retail concepts beyond traditional holiday periods.

"christmas 26 is being bought now and will be bought between you know now and march yeah yeah i mean there aren't any retailers after march that are going to be thinking about christmas it's done it's planned we're ready to go right so this is the time you should be doing a christmas deal now keep in mind in and out business is a different business"

Mark Young emphasizes the critical timing for seasonal retail planning, noting that buyers are already purchasing for the next Christmas season while the current one is still in progress. He stresses that "in and out" business requires a different approach than year-round product sales, underscoring the need for proactive engagement with buyers well in advance of the selling period.

"so what you do in that case is you make a deal with your retailer you have a markdown strategy that's in advance so what you do is you typically have a markdown strategy that's 25 off in the last week 50 off in the next week 75 off in the following week and whatever you can't clear at the end of 75 you either get back or you trash it but you literally build your discount model into the product"

Justin Girard describes a common markdown strategy for unsold seasonal inventory. He explains that brands should pre-negotiate a tiered discount plan with retailers, progressively reducing prices in the final weeks of the season. This proactive approach allows for clearing remaining stock, either through returns or disposal, by building the anticipated discount into the product's initial cost.

"the retailer over orders because the retailer doesn't have any risk other than some storage you as a as the marketer you need to advise that buyer on how much product you need to really figure out what you can sell and be very realistic about it and don't get excited because the buyer says i'll bring in three pallets per store if you know if you really know we're only going to sell one pallet per store yes you got a big order and you're going to get a big return no that's smart"

Mark Young advises brands to exercise caution regarding large seasonal orders, as retailers often shift inventory risk back to the manufacturer. He stresses the importance of realistic sales forecasting and advising buyers on appropriate quantities, rather than being swayed by large order sizes that could lead to significant returns and financial strain for the brand.

"so you need to sit down and you need to make these charts yes possible possible is what what could happen so possible is really two scenarios yeah possibly amazing possibly a train wreck right okay preferable what's my dream what do i want to happen now again what's your dream is i want to sell 100 million with the snow globes probably not so don't dream so big that you shoot yourself in the head but if everything goes right for me what will it look like stars align now why is this important because when everything goes right everything gets stressed yes everything right so all of a sudden i just invented the new hot item and we do this all the time here i just invented the new hot item look at this by god i'm selling these things faster than ever crap i'm out of product and the factory can't keep up and i don't have enough lines of credit to support shipping it so now all of a sudden i just killed myself by succeeding yes and it happens companies can kill themselves by success"

Mark Young introduces the "3 Ps and a W" planning tool for seasonal businesses, outlining "possible," "preferable," and "probable" scenarios. He highlights that even success can be detrimental if a company is not prepared for increased demand, leading to stockouts and strained resources. This framework encourages brands to anticipate potential challenges, even those arising from positive outcomes.

"there's there's a practice in stoic philosophy and the practice in stoic one of the practices in stoic philosophy is called is this what i fear are you familiar with that yes okay i figured you were and um seneca used to do this and what seneca used to do is seneca used to leave his mansion dressed in sackcloth and rags and he went and lived on the street with the homeless and i'm thinking it was a week or two weeks i can't remember the exact time frame from this story but it was a period of time not too long but long enough long enough to experience it and what seneca would ask himself is as he was living homeless and trying to figure out how to eat and do all the things that homeless people have to do because he couldn't use his riches when he went out as he was there he would ask himself the question is this what i fear"

Mark Young draws a parallel between seasonal business planning and a Stoic philosophical practice called "Is this what I fear?" He recounts the story of Seneca, who intentionally experienced hardship to prevent his success from controlling him. This analogy suggests that by contemplating worst-case scenarios, businesses can better manage their relationship with success and avoid becoming overly attached to material gains.

Resources

External Resources

Organizations & Institutions

  • Walmart - Mentioned as a retailer for seasonal product pitches.
  • Walgreens - Mentioned as an example of a large retail chain with many stores.
  • Tractor Supply - Mentioned as a retailer for seasonal product distribution.
  • ECRM - Referenced as a resource for finding category meeting schedules to understand seasonal pitch timing.
  • Jekel Hyde Labs - Provided as a contact point for questions.
  • CPG Insiders - Provided as a contact point for questions.
  • Jekel and Hyde Advertising and Marketing - Identified as an advertising agency with guaranteed results.

Other Resources

  • "Future You" - A book mentioned in relation to future planning exercises.
  • Three Ps and a W (Possible, Preferable, Probable, Wild Card) - A planning framework discussed for seasonal business strategy.
  • Stoic Philosophy - Mentioned as a source for the practice of "Is this what I fear?".
  • Seneca - A Stoic philosopher mentioned for his practice of experiencing hardship to avoid being controlled by success.
  • Melatonin - A substance discussed in the context of unexpected negative study headlines impacting sales.
  • Toenail Fungus Treatments - An example of a product category that was historically seasonal but was repositioned for year-round sales.
  • Nausea Treatments - An example of a product category that was repositioned from cold and flu season to indulgent holidays.

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