Demand & Inventory Planning

Meeting Seasonal Demand: An eCommerce Guide to Seasonal Inventory

Demand & Inventory Planning
December 12, 2023
12 min read

Learn how to navigate seasonal demands on inventory without increasing off-season storage costs or over-extending internal resources at peak season.

How Should Brands & Retailers Think About Seasonal Demand?

Seasonal demand is a common hurdle for both emerging brands and established retailers. Around the holidays, planning for peak season fulfillment means having enough seasonal inventory to meet demand during big ecommerce events like Black Friday, Cyber Monday, and beyond. However, a need for seasonal inventory is not just limited to the peak holiday season. Throughout the year, there may be spikes in seasonal demand around changes in weather, sports seasons, or other big ecommerce holiday shopping sprees like Valentine’s Day, Mother’s Day, or Father’s Day.

Brands and retailers are starting to think of seasonal demand- and the inventory to satisfy it- as year-round sales cycles that need acute attention to detail. However, decision makers are often only left with two unsatisfying options. One is to lock into a storage and fulfillment contract that will cover peak capacity and pay for unused storage during their off-season. Alternatively, they can keep operations tight year-round, resulting in over-extending internal resources during busy seasons. However, leveraging on-demand warehousing gives brands and retailers a much more attractive third option for managing seasonal inventory.

How On-Demand Warehousing Supports Seasonal Inventory

With on-demand warehousing, online retailers only pay only for the warehouse space and labor they need, when they need it. This allows them to scale up operations quickly to meet seasonal demand without committing to the same order volume in the off-season. This new option makes seasonal sales much more profitable by lowering operating costs year-round.

On-demand warehousing is made possible by aggregating the volume of multiple online retailers to negotiate better storage rates and Service Level Agreements (SLAs) for seasonal or cyclical demand. Also known as co-warehousing, this sharing of resources is beneficial both to brands and 3PLs looking for guaranteed seasonal inventory order volume. According to McKinsey, when compared to dedicated fulfillment, co-warehousing can save an average of 7-9% of supply chain costs

We’ll take a closer look at on-demand warehousing and seasonal demand later in this article. If interested, you can go ahead and jump ahead.

“The Problem” Of Peak Season (And Seasonal Demand) Isn’t Going Away

In fact, 73% of ecommerce survey participants expect this year’s holiday sales to be higher than previous years. This increase is by design: 84% of survey participants are implementing longer, more aggressive promotional calendars. Meanwhile, 50% are introducing new deal days, coupons, or promotions to encourage more sales. For more timely insights, download Ware2Go’s 2023 peak season guide.

Seasonal Demand and Profitability

Seasonal demand can often make or break a merchant’s top-line revenue for the year, but it also creates a unique set of supply chain challenges that threaten the bottom-line. 

Understanding the effect of year-round fulfillment and storage costs on the margin of seasonal sales helps brands tap into seasonal demand and grow their business.

The first impact of seasonal demand is a fluctuation in the amount of inventory storage space needed. The graph below shows an example of a merchant whose sales peak during November and December each, driving up their storage needs by more than 100% compared to their off-season in the early summer.

In this example, contracting with a traditional 3PL based on peak seasonal inventory needs would mean paying for more than twice the storage space needed for most the year. Conversely, contracting based on off-season needs and opting for short-term seasonal contract can mean steep premiums come peak season. Meanwhile, available warehouse space continues to decline each year- including adhoc space for their seasonal inventory. 

What Are Some Strategies For Managing Seasonal Inventory?

Seasonal demand creates challenges around warehouse space, labor, and evolving customer expectations for ecommerce shipping. The four major challenges merchants face in managing seasonal inventory are:

1. Required Year-Round Contracts & Inflexible Agreements Can Devastate Seasonal Retailers.

According to McKinsey, seasonal retailers may only make 5-7% of their annual sales per month between February and September. However, those same retailers still pay for warehouse space based on peak demand levels.

2. Storage Space is Limited During Peak Seasons.

Warehouse space is at a premium, and Peak seasons like the holiday shopping season only compound this problem. In fact, Amazon has continued to tighten FBA inventory limits and doesn’t appear to be going back anytime soon.

3. Warehouse and Fulfillment Rates Spike with Demand.

As demand for warehouse space and fulfillment services go up, so often do the prices. Merchants may be moving more inventory in their busy season but at a greater operational cost.

4. Supply Chain Speed Suffers.

If warehouses are unable to cope with large scale shifts in seasonal storage and fulfillment needs, suppliers may be forced to reduce inventory or curb production. In turn, thiscan impact order fulfillment speeds: resulting in more frequent stockouts,slower delivery times, and decreased customer satisfaction.

So, in spite of these challenges, how can merchants manage seasonal inventory? The first step is through proactive supply chain planning. On a practical level, a proactive approach to supply chain planning looks like:

  • Accurate Demand Forecasting: Going into periods of seasonal demand with a clear forecast according to previous years’ sales history, current industry trends, and geographic patterns of demand enables merchants to take control of their profit margins and seasonal operating costs in a way that can significantly move the needle for their business.
  • Distributed Inventory: Often, seasonal demand is also regional. For example, ski jackets will likely never sell as well in warmer regions as in colder ones. However, when merchants stock inventory in areas of greatest demand, they’re able to fulfill with ground shipping in 1-to-2 days without relying on next-day air.
  • Offloading Slow-Moving SKUS: Slow-moving inventory can eat up profits with long-term storage costs. Seasonal retailers should consider offering deep discounts on slow-moving SKUs. By bundling older inventory with newer products in buy-one-get-one promotions, eventually obsolete inventory can be liquidated.
  • Streamlined Fulfillment: Streamlining fulfillment through a plug-and-play supply chain solution that enables both aggregated and comparative views, sales performance, and order profile by channel and geographic market. Ultimately, this allows brands to make strategic decisions around inventory allocation and marketing spend.

5 Seasonal Inventory Management Methods

There are five main methods for managing inventory, and any of them could be appropriate for managing seasonal inventory, depending on SKU profile, sales velocity, current business operations.

First in First Out (FIFO): 

The FIFO inventory method works by using the oldest inventory (first in) to fulfill orders first (first out). The FIFO method is appropriate for perishable and highly seasonal products and can be used to increase margins on items that experience price hikes during times of high seasonal demand.

Last in First Out (LIFO): 

The LIFO inventory method uses the newest inventory (last in) to fulfill orders first (first out). The LIFO method can be used to quickly recoup expenses on products acquired at a premium seasonal price, either at the raw materials level or as finished goods.

Just in Time (JIT): 

The JIT inventory method is the method most commonly used by SMB’s because it requires the least intensive demand forecasting. JIT supply chains are replenished on an as needed basis. They are a high-risk supply chain management strategy and can reward merchants with increased capital on-hand, but as we’ve seen with recent supply chain disruptions, they can also leave merchants with empty shelves when seasonal demand hits.

Economic Order Quantity (EOQ):

The EOQ method determines ideal inventory levels using three metrics: customer demand, acquisition cost, and holding cost. The EOQ method can drastically cut down on inventory carry costs but requires advanced demand forecasting models supported by a lengthy sales history.

ABC Analysis:  

An ABC analysis prioritizes SKUs by lumping them into three categories: A — high value products with a low contribution margin, B — mid-value products selling at a mid-range velocity, C — high velocity products with low margin. An ABC analysis helps merchants prioritize the SKUs that are ultimately driving the profitability of their business and may prompt them to reconsider their product profile entirely.

4 Ways On-Demand Warehousing Helps Meet Seasonal Demand

Without the proper warehousing and fulfillment solution, seasonal suppliers may spend a significant portion of their annual revenue paying for storage space they don’t need. However, with the arrival of on-demand warehousing and fulfillment to the logistics space, businesses are now afforded with a much more flexible solution for managing seasonal demand. Here’s how:

1. Complete Storage Scalability.

On-demand warehousing provides businesses with complete flexibility over the levels of inventory they maintain year-round. Warehouse space can be scaled up or down as needed, and with flexible contracts and no start-up fees, they’re a low-risk option that minimizes investment in fixed assets.

Businesses pay only for the space that they use, when they are using it and rates are consistent year-round. This enables season merchants to keep overhead low during the off-season and rapidly scale up their inventory in time for the busy season without being sidelined by excessive costs or insufficient storage space.

2. Real-Time Inventory Status & Restock Alerts.

By combining their network of warehouses with software, the leading on-demand solutions provide businesses with real-time insights. This includes: inventory status across each warehouse location, the status of outstanding deliveries, and in-process shipments. The most advanced systems will also set automated re-order points and deliver alerts when inventory drops below a certain threshold.

3. Demand Planning & Sales Forecasting.

As supplier data regarding inventory turnover, seasonal demand, and customer deliveries accumulate within the system over time, businesses can leverage the on-demand solution to develop sales and demand forecasts. This allows them to effectively plot out required inventory levels over the course of the year. Ultimately, companies can use these insights to optimize the amount of inventory they maintain year-round, thereby avoiding the costs of excess storage space while also protecting against potential stock outages.

4. 2-Day Ground Delivery. 

Looking beyond seasonal inventory management, on-demand warehouses offer a distributed network of warehouses to enable nationwide 2-day ground delivery. With 57% of shoppers waiting until December to purchase, a nationwide 2-day ground delivery network is a competitive advantage for attracting last-minute convenience shoppers.

Flexibility is the Key to Seasonal Inventory Management

As the winter holiday season approaches, many seasonal suppliers are preparing their supply chains for uptick in demand. Without the appropriate warehousing and inventory management strategy, several will sacrifice margins to elevated storage costs. With on-demand warehousing it’s now possible to transform seasonal inventory management from a pain point to a growth lever.

‍To learn how Ware2Go can help your business manage seasonality, reach out to one of our logistics experts.

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