In the world of 2021, planning is at times more of a hope than a firm commitment. Will you attend that summer concert, or will it be pushed to the fall? Will you see the next blockbuster in theaters or catch it on your favorite streaming service?
While some decisions remain up in the air, retailers have often already made commitments months in advance, thanks to long-lead buying and production cycles. While predicting the future is never an easy task, the current environment makes this more challenging than ever.
Merchandise financial planning is the starting point for the retail planning process. This stage allows chief merchants and planners to set guardrails around decisions to be made downstream. Historically, this process has relied on forecasting and re-forecasting, but increasing uncertainty now demands a more calibrated approach.
As consumer buying habits have shifted at an increasing pace and lead times for merchandise have held steady or even lengthened, retailers now need more adaptive tools to give them insight into how decisions will play out in-store and the precision to understand their customers beyond simple attributes such as store geography.
For decades, lipstick has been a critical business category within fashion around the world, and its fate naturally impacts adjacent and complementary products. As a central part of the makeup category, planners naturally purchase tubes to fill their shelves and keep up with demand, a choice that made perfect sense until face masks suddenly rendered lip color a largely moot point.
This change has sent ripples through the makeup category; in fact, more than two-thirds of consumers scaled back their use of makeup in the past year. While this has left some retailers with an overstock, it has also shaken up demand for adjacent products such as eye shadow and mascara and can spread further to other categories.
While such radical shifts in demand thankfully are uncommon, this example teaches us important lessons about what has become the science of fashion, or how retail planners buy and the interplay of their choices. What’s more, it offers an opportunity to consider how new facets of AI in retail can help stores and brands take a more fine-tuned approach to planning.
Chief merchants are no strangers to a challenge. By definition, these leaders must look ahead into the future and create an assortment of products with both breadth and depth to meet the needs of tomorrow’s consumer—whether that’s a complementary rainbow of shades or a variety of brands to appeal to a mix of consumers.
Today, the considerations are more complex. For instance, with their favorite red lipstick sitting idle on the vanity, shoppers may be apt to try out a smoky eye, uninhibited by the need to match their look with an appropriate lip pairing, and retailers may see shadow sales skyrocket.
Demand transference, or the interplay between products in a given category in light of or in the absence of one another, is often observed in the case of stock-outs: when a shopper in search of a nude lipstick finds only pink, red, and burgundy in stock, they may opt for a different shade rather than walk away empty-handed.
As merchants add more options to the mix—say a berry shade for spring—they may see a halo effect, with shoppers buying berry and pink together, or they may see the new shade steal share and “cannibalize” a shade that had previously held its own.
Masks may have temporarily caused consumers to give lipstick the kiss goodbye, pulling the bottom out on even the best-planned assortments and sending demand transference spinning.
To keep up, retail planners are using new strategies gleaned from AI in retail fashion to recalibrate:
While retailers are still getting their arms around the lipstick challenge at hand, the pandemic continues to shake up the fashion category. From the rise in athleisure over business attire to so-called “maskne” potentially spurring new skincare sales, planners continue to deal with the shockwaves of the pandemic.
As we look forward to the world reopening, timelines remain unclear, but retailers have the technology and tools within reach to help them plan intelligently, even in the face of many unknowns.