Forecasting for Omni-channel Retailing

by Jackie Biallas

The customer is demanding it.  Competitors are stepping up to the plate.  Omni-channel retailing – providing a seamless shopping experience across multiple channels – is necessary to succeed in today’s retail world.   How can a better sales forecasting system contribute in this complex environment?

Omni-channel retailing is customer-centric.  The customer is demanding that all channels are consistent in their messaging, promotions, and pricing.  Physical stores, online sites, mobile technology, print mediums must all provide a seamless shopping experience for the customer.  Gone are the days when a company’s website could have different pricing from its in-store merchandise.  Omni-channel retailing assumes that a customer may start her shopping experience in one channel and then move to another and then, perhaps, to another, before making a purchase.  For example, a customer may discover an item through a printed ad or catalog, search for reviews online, and then go to the company’s website to determine if the item is available at her local store.  Once she determines that the item is available, she drives to the store so that she can actually touch the item or try it on.  At the store, she searches competitors’ sites to determine if she can find a better price somewhere else.  Once she purchases the item, she will share her positive experience online through social media or reviews on the company website.

Omni-channel retailing brings with it a number of challenges:

  • Multiple new channels: Where a retailer may have operated through one channel in the past, they now may be operating through multiple channels.  A retailer who operated a brick and mortar store, may have now added a website.  Inventory management is more complex.
  • Increased number of SKUs: They may also sell more items online than in their store, like extended sizes and colors.  This can be accomplished by carrying these additional SKUs in a fulfillment center, or by having a vendor fulfill customer orders for them.
  • Supply chain complexity: Additional channels of distribution require additional distribution (shipping to stores) and fulfillment centers (shipping to customers).  If selling through Amazon, some of the inventory may be housed at Amazon fulfillment centers.
  • Vendor fulfillment: If a vendor is going to fulfill extended sizes and additional SKUs, the relationship must be developed so that the retailer knows at all times how much inventory is available for their customers.
  • Returns: The number of returns a company receives goes up with online shopping. According to Invesp, 30% of online orders are returned compared to 9% brick and mortar.  It is important to have a returns process that accurately reflects the inventory levels of sellable merchandise.

Successful omni-channel retailing requires that inventory levels be accurate across multiple channels, with integration into one system.  It is necessary to have one total inventory number for all the stores, distribution centers, fulfillment centers, and vendor fulfillment.  But it is also important to be able to see at which location the inventory is housed in real time.  This allows a company to determine whether inventory should be transferred from one location to another based on demand.  A good forecasting system will enable companies to determine what the needs will be in the various locations, allowing them the foresight to manage the inventory in a manner that is most profitable to the company.  The goal of the retailer is to optimize the inventory levels at all the locations, simultaneously.

Increase customer satisfaction by giving customers what they want and need, when they want it.  Customer insights gained by omni-channel data gathering will give businesses the ability to develop growth strategies.  But the first step in gaining customer satisfaction is having the goods available to them in the first place.  This requires 1) an inventory management system that is consistent across channels and locations and 2) a good forecasting system to determine demand and inventory needs by location.