Just a few days before Christmas, the once fresh-looking holiday aisles at a Target store in Portland, Oregon, were already picked over, complete with clearance signs.
So how did Target decide on these exact toys and holiday decorations? Not to mention how many of them the store should carry?
“It is to a large extent a science combined with an art,” says Akshay Rao, a marketing professor at the University of Minnesota. Every year, retailers face this classic problem where they try to determine how much to order without fully knowing the demand, he says.
“You look at historical data, you look at trends, you look at stated preference in the marketplace through some sort of market research, and you come up with an estimate of what’s going to be hot,” he says.
For many retailers, Rao says, that’s just the first step.
“The other side of that equation is attempting to influence that demand,” he says.
Retailers use tools like social media to steer customers toward certain products. They also use discounts or emphasize features, like a phone with a fancy new camera, to entice customers to buy, he says.
At the end of the day there’s still plenty of guesswork involved.
“And people who guess right are considered geniuses and are often lucky, and people who guess wrong are left holding a fair amount of inventory that then goes on sale the day after Christmas,” Rao says.
But stores have a new challenge, says David Raffo, a business professor at Portland State University. Consumers are waiting longer to make decisions about what to purchase. And that’s making it harder to predict holiday sales.
“The way it use to be is that people would get signals, like Black Friday, what’s hot, what’s not, and then they’d try and get it on their shelves, more of it or whatever, as fast as possible,” he says. “What are the sizes? What are the colors? What are the toys that people are wanting?”
But it’s better for retailers to have too much inventory than not enough, Raffo says.
“The cost of not having the product is lost sales,” he says. “It’s not just the sale of that product, but if a retailer doesn’t have what you want, you may go to another store and do all your other shopping at that other store.”
And besides, without that extra stuff, how else would retailers be able to offer those great after-Christmas deals?
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