US retail sales increased 1.1% in February
while inventory levels increased 0.7% in January. Continued optimism for the
improving US economy appears to be helping this increase. Still, retailers need
to manage inventory levels effectively or run the risk of either too much or
too little inventory on hand.
US retail sales increased 1.1%
in February after increasing only 0.4% in January. Sales of automobiles and parts as well as
gasoline helped push retail sales to its largest gain since September 2011.
The increase in retail sales was
preceded by an increase in inventories for the month of January. The growing
confidence in an improving economy resulted in an inventory increase of 0.7%
and a 1.1% increase among retailers. This was the biggest increase since June
2010. Automobiles and parts accounted for much of the increase, climbing 2.6%.
Excluding the automotive sector, retail inventories were up 0.4%. At the
current sales pace, businesses have enough goods on hand to last 1.27 months,
the same as in December. The last time the ratio was lower was in March 2011.
According to the “State of the
Retail Supply Chain” by Auburn University, Retail Industry Leaders Association
(RILA) and sponsored by Accenture, balancing inventory and demand has long been
a perennial challenge for retailers. The increase in ecommerce has added an
additional challenge to inventory management as many retailers seek to
integrate inventory management of both physical stores and ecommerce
operations. A survey conducted by Aberdeen Group indicated that half of
respondents did not have access to real-time inventory order data which made
these retailers vulnerable to shifts in demands. In fact, this was evident
during the holiday season when Best Buy told customers it was unable to fill
some Bestbuy.com orders due to running out of some products.
For other retailers such as
Staples and Walmart the integration of inventory management systems of
ecommerce and physical stores has appeared to be successful. Real-time
inventory of items is indicated on Staples’ website for consumers to view. Walmart’s
Pick up Today service allows consumers to buy online at Walmart.com and pick up
orders at a nearby store in about 4 hours.
“The State of the Retail Supply
Chain” also notes the growing use of business analytics tools to analyze and
forecast such supply chain headaches as demand, order management as well as
inventory optimization. Expect increasing use of such tools in not only the
retail industry but in other industries as well.
Not only is such IT solutions as
inventory management and business analytics
important, but the need to work with supply chain partners is important
in any industry including the retail industry. Retailers have made improvements
in managing inventory thanks, in part, to improved collaboration among supply
chain partners. According to the CFO of Stanley Black & Decker, a global
provider of power tools, “Your vendors, your manufacturing locations and your
customers and the forecasts that go back and forth between those different
entities are in sync and quickly respond to changes in the environment and as a
result, you don’t have large inventory levels or too little of inventory
because they are very automated and they are in sync.”