The Top Three Demand Challenges in 2023
Published: March 21, 2023
In a recent Roundtable discussion, Brady Coady, Associate Vice President, Merchandise Planning & Allocation at FGL Sports Ltd, was joined by two retail supply chain executives to explore the top three demand challenges in 2023.
Challenge #1: Increasing Demand Volatility
Rapid consumer behavior changes have made it difficult for retailers to predict which products will be in high demand. This has led to companies trying to strike a delicate balance between having enough inventory to meet demand and not overstocking. Said one former global demand planning director at a global footwear and apparel retailer:
“[Demand has] been changing faster than we were ever used to. We’ll see how inflation impacts it over the next several months. Discretionary products are riskier right now versus staples like toilet paper. That’s one reason Procter and Gamble are more resilient at this point. So [demand volatility] will depend on your product type because people have quickly ratcheted down spending with inflation. Many of these factors are impacting consumers’ decisions very, very quickly. So how do we manage this volatility? For example, some companies bought products early this year due to last year’s challenges. That bit them because then they had too much. So you’re darned if you do, darned if you don’t.”
Challenge #2: The Proliferation of Channel Complexity
The proliferation of different shopping channels and platforms has made it difficult for retailers to determine the right product assortment for each. With the emergence of platforms like Instacart, retailers must also figure out how to condense their website assortment into a format that appeals to Instagram shoppers. Said one retail supply chain executive at a Canadian luxury department store chain:
“We have lost control of what the correct assortment is. When it comes to e-commerce, the sub-channels have exploded because e-commerce isn’t just the web; it’s mobile. And people shop differently on their phones than they would on the browser. And there’s also a marketplace that’s increased total assortment by four or five in just three or four years. So, the ability to supply their choice has just exploded for consumers. And that’s on the long-tail side. But on a more strategic side are the Instacarts of the world. How do you condense your entire website assortment into something that an Instacart shopper would want? It’s almost the opposite problem of the marketplace, which is the long tail. We’ve yet to solve that. We find ourselves just throwing darts at the board and hoping something will stick. This is where analytics needs to stand out and bring things to the forum.”
Challenge #3: Reaching New Demographics and Bridging the Gap between In-Store and Online Retail Experiences
Reaching new demographics is a top priority for legacy retailers. The problem is that demographics can differ significantly per channel. One channel may be native to older ambitious professionals. Another channel—college students. Replicating the in-store experience online has also proven to be difficult. While more advanced e-commerce companies like Amazon make it look easy with tailored pages, legacy retailers often don’t possess the technical capabilities or expertise. Said the same executive:
“Reaching new demographics is also challenging because of all these new sub-channels. The Instacart demographic is very different from the typical marketplace demographic, which tends to be a very successful career person. In contrast, an average Instacart consumer could be in their late teens or early 20s. Still, it’s a demographic we need help to get through. We are cross-referencing consumers who shopped with us through Instacart versus those who shopped with us in the marketplace; if there is a commonality, we should go after them. Our promotions should cater to them so they can become more robust online or brick customers. It’s challenging to look at omnichannel and brick SKUs from a digital perspective because the sorting algorithm doesn’t start with SKUs. It begins with choices. But in the store, we have SKUs. We create this new problem where what the consumer sees is essentially a product or SKU in store. But online, that is different from what your tool controls; your tool controls an abstraction of style, color, and size. That creates a disconnect between how you impact various channels. Could we affect what different consumers see when they visit our website? Amazon does this well. Some more mature e-commerce retailers do this when they customize your web page for you. But for a legacy player like ours, it’s a little more complex challenge.”
Most legacy retailers agree that it’s time to evolve. But the path forward is not always clear. One approach that has shown promise is adopting a forward-thinking approach that leverages advanced data analytics-driven planning software to gain actionable insights that drive better, faster planning and decision-making. By combining fit-for-purpose technology with a digital transformation leadership program, established retailers hope to increase their competitiveness and longevity in the new normal.
1. Increasing demand volatility has created a catch-22 for retailers who risk missing out on sales by not keeping enough inventory and maximizing sales but incurring increased costs due to extra inventory.
2. New shopping channels such as Instacart have made it challenging to forecast demand per channel, as different channels have different consumers with different shopping habits. What works in the store assortment-wise may not work in an online channel.
3. Reaching new demographics—for example, trying to convert an Instacart shopper into a brick-and-mortar customer—is challenging for legacy retailers due to the disconnect between how shoppers experience an assortment online versus in-store.