What is retail allocation?
Retail allocation, also known as merchandise allocation, is a key part of retail planning. It involves assigning individual item quantities to different stores or channels based on factors like historical sales data, customer demographics, and demand forecasts. Otherwise known as merchandise allocation, retail allocation is an in-season process in the retail planning cycle that aims to allocate the right products to the right stores or channels in the right quantities at the right time. The overarching goal is to optimize inventory allocation to meet customer demand and minimize excess inventory and stockouts to maximize profitability.
Why is retail allocation important?
With the right products in the right locations at the right time, retailers can meet customer demand seamlessly. This reduces stockouts and ensures popular items are always available, driving higher sales and customer satisfaction. Efficient allocation minimizes overstock and understock issues. This helps retailers reduce carrying costs, free up capital, and make better use of storage space.
What are the main phases of retail allocation?
Retail allocation happens in two main phases: initial allocation and replenishment. Both ensure stores have the right products, but they happen at different times and serve different purposes.
Initial Allocation: Initial allocation is the first shipment of new products to stores. It usually happens at the start of a season or product launch. Retailers decide how much inventory to send based on store size, past sales, customer demographics, and regional demand.
Replenishment: Replenishment happens after initial allocation. It ensures stores continue to receive inventory throughout the season based on actual sales and stock levels.
What factors influence retail allocation decisions?
Allocation means distributing stock across different retail stores based on expected demand in each location. It involves determining what product quantity to send to each store based on factors like sales history, customer demographics, and store size. To make informed merchandise allocation decisions, retailers analyze sales data, market trends and other factors that may influence demand. Advanced analytics enable them to forecast demand accurately and allocate inventory accordingly. Retailers need to consider additional factors, such as store size, location and customer demographics.
What allocation methods do retailers use?
Retailers use both manual and automated allocation methods. While automation speeds up the process, manual adjustments are still necessary for special cases.
Manual Allocation: Manual allocation relies on planners and allocators to analyze data and decide where inventory should go. This method gives teams full control and allows them to react to unique store needs. However, it’s time-consuming and prone to errors, especially for retailers with many stores and products.
Automated Allocation: Automated allocation uses software to track sales, inventory levels, and forecasts. It makes real-time decisions on where inventory should go, reducing stockouts and excess stock. Many modern tools adjust allocations based on current sales trends, ensuring fast-selling products get more stock while slower-moving items receive less.
What are the main challenges in retail allocation?
Customer preferences can be unpredictable, influenced by trends, seasons, and local events. Accurately forecasting demand for each location is a constant challenge that can lead to overstock or stockouts if done poorly.
Allocators must work with enormous volumes of complex data, including historical sales data, inventory levels, store performance metrics and market trends. This data can be difficult to manage and analyze, particularly for retailers with a large number of stores and channels or those operating in diverse geographic regions. Traditional tools such as spreadsheets and legacy reporting solutions do not adequately support the modern retail landscape, making the process all the more challenging.
How does retail allocation differ from replenishment?
While allocation and planning seek to map out the quantity of inventory at every location before the selling season starts – replenishment is the process of re-ordering inventory once the selling season has started. Retail Replenishment can be defined as acquiring product on a recurring basis to support anticipated need. Replenishment is best served as an automated process given the huge number of combinations of items and store locations.
What are the benefits of effective retail allocation?
Efficient retail allocation is more than just placing inventory on shelves—it’s a strategic process that drives profitability, streamlines operations, and keeps customers coming back. With the right products in the right locations at the right time, retailers can meet customer demand seamlessly. This reduces stockouts and ensures popular items are always available, driving higher sales and customer satisfaction.
Among the benefits, proper inventory allocation cuts down on storage costs, speeds order fulfillment and ultimately leads to higher profitability.
