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Retail Planning – Planning for 2022

by Mike Brown VP, Business Development

August 31, 2021

 

As the retail industry starts to open up again (post covid) and business begins to “normalize” to some degree, it’s the ideal time to reflect on what has happened to the business through 2020/2021 and plan the building blocks for 2022 and beyond. Consumer’s behaviours shifted dramatically. Consumer loyalty and habits evolved quickly. Global sourcing and supply chains have never been so volatile.  Additionally, the lockdown experience has pushed the industry to adapt and change faster and earlier than it would have on its pre-covid trajectory particularly with e-commerce focus and operational effectiveness. Ecommerce became critical to the survival of many businesses. It will be important to separate temporary trends from long term retail shifts.

Planning and forecasting accuracy will tend to be more difficult than ever, due to the many unprecedented metrics and changes that have affected business. Looking at the more recent history in the market with strong upward swings in sales performance it appears to be driven by pent up demand which could be temporary. For example, major retailers Q2 results for 2021, indicates how challenging it will be to estimate the balance of 2021 and 2022. Significant Q2 comparable sales have been reported at Home Depot +4.5%, Target +8.9%, Wal-Mart U.S. +5.2% and TJX +20.0%. Can any of these metrics really be used as a sales baseline to plan 2022?

With a documented history of the past 18 months at hand, retailers should take the time NOW to review and decide on what can and will be addressed in the business plan of the future. Were “lost sales” (due to stock-outs) opportunities captured in the data? What happened with direct competitors? Did government stimulus packages have a sales impact? Is there a need to spend capital on technology gaps that were exposed in this volatile market?

The three major planning steps to start on now: Merchandise Plan, Financial Plan (including any Capital Expense) and the Operating Plan.

Merchandise Plan:

  • Build the demand profile from store level up, at classification level. Use 5 years history if possible and select the best representative monthly/weekly sales trends within. If this is not possible, use 2020 data and manually smooth out spikes or fill in lost sales opportunities due to stockouts.
  • Consider issuing OTB$ earlier than prior years, placing PO’s early to secure goods.
  • Pre-approve substitutes for products or raw materials and alternate vendors for sourcing and production planning.

Financial Plan:

  • Using the merchandise plan as a base, build a robust financial outlook for sales, margin and inventory in 2022 and where possible into 2023-2027, taking into account any potential cost increases that could affect EBIDA.
  • It’s more important than ever to plan accurately by channel, including breaking down e-commerce into sub-channels that include home delivery and curbside pickup, layering in volume by geographies such as region and district to enable capacity planning for distribution centres and transportation.
  • Consider capital spending and other resources identified as needs through the pandemic disruption to improve or replace legacy systems, enhance supply chain visibility, overhaul ERP capability and build on e-commerce platforms.

Operational Plan:

  • Build a proactive “Plan B” to address each operational risk as identified and roll up all those risk mitigations into an overall cohesive resilience strategy. Early planning and executive support of this strategy will help to speed up tactical actions in real-time. Review overall corporate business continuity plans and revise as needed. Create methods of early identification of issues and opportunities.
  • Supply Chain Visibility. Through a combination of system and/or process upgrades, develop sound practices that allow for easy and consistent access to product demand and order status across the organisation. Increase data and analytics capabilities through exception-based reporting.
  • Inventory. Both retailers and manufacturers will be looking to mitigate supply chain risk by adding new sources for raw materials / finished goods, increasing safety stock levels, increasing local warehousing capacity, or adding additional points of distribution.

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