Data-driven Strategy Can Remove Inventory Management Guesswork for Outdoor Retailers

Over the past three years, the outdoor retail industry has faced challenges in supply chain, shifting consumer demands, and forecasting. This has led to elevated inventory levels posing financial risks to businesses in this sector as a potential recession looms. To navigate these complexities, companies should adopt a data-driven inventory management strategy. 

According to the RSM U.S. Middle Market Business Index survey, 48% of companies across a variety of industries, including those in the retail space, saw an increase in supplies in the second quarter, down from 52% in the previous period. However, 60% expect inventory levels to increase in the next six months, indicating ongoing inventory challenges. 

Source: U.S. Census, Bloomberg, RSM US LLP

Removing the guesswork 

Businesses can no longer rely solely on intuition or outdated strategies. The availability of predictive analytics and artificial intelligence provides more precise tools to reduce guesswork, mitigate risk, and increase certainty in decision-making. Companies should evaluate the cost of forecasting errors against investments in optimizing working capital utilization and enhancing profitability. 

Challenges in the outdoor retail industry include oversupply, stockouts, forecast errors, lackluster processes, and excessive SKU proliferation. Oversupply occurs when companies overstock due to partially filled orders or stockouts caused by component shortages or supply issues. Forecast errors burden working capital and hinder operational funding. Lackluster processes, inaccurate data, and lack of standardization further compound the challenges. The proliferation of product offerings and variations can tie up cash and hinder profitability. 

While consumer spending in the outdoor retail sector has remained resilient, concerns about a potential recession remain. Strains in spending patterns, especially in categories like apparel and accessories, raise the need for proactive inventory management to align with evolving consumer preferences and economic conditions. 

Adopting a data-driven approach to inventory management is crucial. Focus areas for businesses include: 

• Technology: Implement or optimize inventory management software, and leverage data analytics and supply chain management systems for data-driven decision-making. Incorporate predictive analytics using internal and external macroeconomic real-time data. 
• Collaboration: Build partnerships with suppliers, distributors, and customers for insights into market trends and accurate demand forecasting. Optimize shared data or collaborate more frequently if sharing is not feasible. 
• Processes: Establish governance policies based on statistical analysis for key areas such as reorder points, target levels, and costs by inventory segment on an ongoing basis. 
• Training and change management: Invest in training and change management to ensure a continuous improvement approach. Well-trained managers should monitor and measure results. 

The takeaway 

Companies, including outdoor retailers, often have fragmented data across multiple systems, making analysis costly and infrequent. Focusing on technology, collaboration, processes, and training will increase the likelihood of successful inventory management improvement efforts. 

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