Black Friday 2016 took everybody by surprise. The biggest shopping day of the year is a crucial date in any retailer’s calendar. And rightly so. Auditors and analysts predicted that 2016 would see the majority of consumers splashing out more cash than ever before on everything from scented candles to big screen TVs.
But things went a little differently than expected. Online sales failed to achieve the double-digit surge that was expected. Whilst IMRG had forecast sales hitting £1.27bn (a 16 per cent spike on last year) the figure fell to £1.1bn. Rather than spending more on the big day, shoppers waited to purchase what they would have bought anyway, and just 21 per cent of the UK opted to take advantage of the discounts.
So what went wrong?
I think Brexit is a pivotal factor in the drop in sales that's now referred to as Flop Friday.
Brexit: The fickle beast unhinging retailers across the UK
Brexit’s shifting economic conditions have injected uncertainty into every industry. Depending on your choice of newspaper, the economy is either set to soar or sink when Article 50 is triggered. And every time Brexit makes headlines the markets, and our moods, go a bit wobbly.
Retailers and manufacturers are especially vulnerable. This volatility puts them at a crossroads: keeping a dead inventory or being subjected to a stock out. In the aftermath of Brexit, retailers have felt the results of:
- Immediate impacts on banking, currency and financial market disruptions.
- Volatility from trade agreements, import duties, shopping behaviour and pricing strategies (think the ‘MarmiteGate’ price row between Unilever and Tesco).
- Delays of larger purchases, like cars and computers, and spending cut backs across consumers’ weekly budgets.
So what can they do about it? By implementing a mature demand forecasting process, retailers can benefit from predicting demand to inform trading decisions or resource planning. And as volatility increases on all sides, it’s a chance for retailers to mitigate as much of that risk as possible. This can be achieved by accurately knowing which levers they need to pull in order to reduce the forecast errors that create the difference between success and failure.
Five ways retailers can profit and prosper in times of uncertainty
During times of extreme and unprecedented volatility, the ability of an organization’s demand forecasting to deliver tangible savings are put to the test. Forecasts that provide a high degree of accuracy can give businesses not just the confidence to proceed with their existing plans, but allow organizations to be proactive around new product launches and procurement statements.
And when it goes right, we’ve seen companies deliver an increased shareholder value of 15 per cent or more. I’ve worked with supply chains for major organizations who’ve use demand forecasting to do just that. Those who succeed are experts in the following:
1. Understanding factors that affect demand
Creating visibility at a granular level of what affects demand on a per product level allows organizations to better coordinate their supply and demand plans.
2. Changing perceptions and gaining trust for statistical forecasts
Collaborating across the entire business and getting everyone on board, including marketing and finance, is key. People with 20 years of industry experience can add tremendous value when it comes to demand forecasting, but unless they see an accurate statistical demand forecast, they will have an inherent mistrust in the numbers. That mistrust can cause them to revert to their previous manual forecasting methods or fiddle with the forecast models -- possibly reducing the accuracy.
3. Effective scenario planning
This means managing the impact of changes on key variables that can be controlled (e.g. price, advertising in-store merchandising and sales promotions) and, as in the case of Flop Friday, the external influences that are beyond control.
4. Acting at scale
Organizations need to use all of the data available, not just a sample, and use it to make an impact across the entire business.
5. Understanding and utilising the speed of innovation
Your organization must have a firm understanding of the impact that product innovations, changes to procurement and service delivery strategies will have on the organizations’ existing portfolio or operations.
What does a successful post-Brexit supply chain look like?
A successful supply chain should not only be able to accurately forecast demand, but effectively shape it in collaboration with the broader business. To achieve this, businesses need to integrate their ability to understand demand volatility with their ability to align demand with supply.
Whilst these have traditionally been siloed operations, with supply chain being a reactive function, the two need to increasingly work together to optimise forecasting and responsiveness. Take Nestlè for instance – a business using insights and advanced analytics to give its supply chain the edge.
I’m writing another, more in-depth article on the Nestlè transformation, which will be available soon on our demand forecasting resources page.