A pet store offers everything needed to keep a pet happy and healthy, from food to toys, and even sells pets. Because a successful pet supply store sells everything related to pets, inventory management in pet retail is frequently a huge undertaking. Large inventories can be challenging to manage and track, and if done incorrectly, can lead to either excess stocks or lost sales and disappointed customers.
We are responsible for what we have purchased
"You are forever responsible for those who are tamed," said the fox to the main character of the world-famous fairy tale "The Little Prince" by Antoine de Saint-Exupéry.
This apt saying is always relevant as long as people are willing to pay more to give their little family members the best. This commitment is the main driving factor for the development of the market and makes it very lively and highly competitive.
Today's blog is about the challenges and specifics of inventory management in pet supply retail and tools to help make supply chain management more efficient.
Importantly, it will not be about the departments in hypermarkets or department stores but rather about specialty pet stores, which, in turn, may differ in size and type.
If you want to win – change and automate
If you want to win – change and automate
The days when you could successfully open a small pet store at the right time and in the right place (for example, in a new residential area) are long gone. Today, most stores sell pet food and accessories: they can be purchased in grocery stores and supermarkets, DIY stores, markets, kennel clubs and ordered online. The internet channel has grown stronger. In order to remain competitive in the sea of price wars and clever advertising, it is worth changing, following trends and optimizing your processes to increase margins by reducing expenses.
In a fiercely competitive market, the management of stock in retail should be carried out in close connection with merchandising, training of sales personnel about the status of inventory, marketing tools (promotions, CRM with loyalty programs), building effective partnerships with suppliers, etc.
Software solutions that self-improve based on the analysis of sales data and the formation of sales forecasts help to build an effective system of business processes enhanced for efficiency and a competitive edge in the modern world, such as Leafio Inventory Optimization – an automated solution for managing inventory in retail based on artificial intelligence. The Leafio Platform is made according to the modular principle, where each component module takes into account industry specifics and challenges faced by users-managers. Artificial intelligence focuses a user’s attention on problem areas, helping them make decisions and automating routine tasks.
Your niche is your “feature”
There are three main types of stores that sell pets and pet products:
- Classic small neighborhood pet store: From half to two-thirds of the inventory of such retail outlets is food for the most common pets (dogs, cats, birds, rodents, fish) and another 20% are accessories (collars, leashes, dishes, carriers, toys, care products). The remaining 10-15% are best-selling medicines and veterinary products.
- Specialty stores: For example, an aquarium fish store and everything related to their maintenance: actual aquarium fish and other marine animals, aquariums, food, plants, accessories and equipment.
- A supermarket (hypermarket) that sells pet goods and supportive services for the care of animals (veterinary clinic, grooming salon, animal daycare, and even a small contact zoo – yes, do not be surprised what some retailers will offer to differentiate themselves).
The large assortment is the field of challenges and opportunities
Regardless of the type of outlet, we deal with a huge assortment of goods (even in a small, highly specialized store). A common problem for small pet stores is the limited space for displaying goods in sales aisles as well as the insufficient size (and sometimes the complete absence) of storage space directly at the point of sale.
"Effective stock management for pet shops depends on the area of the sales aisles, or rather on the effectiveness of their use. Since the assortment can be very large, due to limited space, products cannot be found or noticed. This results in lost sales and excess inventory. Therefore, it is important for pet shops to work together both on stocks and on merchandising,"notes Helen Schepanik – Product Director of Leafio Inventory Optimization.
The built-in functions of Leafio Inventory Optimization will help you manage ordering and placement of the right amount of goods in the store. So, in order to limit orders to the storage locations (sales points) with small or completely absent warehouses, you can set the limit in the system – the maximum buffer that will not allow you to order goods in excess of the amount that can be placed in the desired location. You can effectively use the space in the sales aisles with the help of the “Shelf” function. The module includes data of the shelf capacity planograms, while the system will independently complete the order to the required quantity.
Leafio can also automatically detect wholesale sales based on specified criteria without taking into account their impact on daily demand and orders.
The range of products on the market for pets, in addition to the large size, has the following characteristics:
- A large and diverse product matrix with many categories, brands and SKU numbers. The assortment can be classified, sorted and displayed according to various features for more convenient orientation among the large number of products, for example, in the context of the turnover of goods according to the results of the ABCD analysis, or from the point of view of the demand for the product (XYZ analysis), or the structure of the balance, etc., in general, a number of reports. The system will also display all the information on the screen in the form of convenient dashboards. The goal is to optimize the assortment and stocks, in particular, to identify "dead goods" that should be removed from the assortment and/or goods that are characterized by significant instability of demand that require the maintenance of significant balances in warehouses (thus causing an increase in storage costs).
"For convenient withdrawal from the assortment in Leafio Inventory Optimization, there is a special procedure OUT, which allows you first to block the order of the product from external suppliers, while distributing the balances on the network, and after they are zeroed out, automatically transfer the product to the "inactive" status. At the same time, if such a situation arises that the product will be available at the DC, but it will be blocked for order at the stores, the system will signal about this, because in this case, the product will not be able to be distributed and sold," says Helen Schepanik - Product Director of Leafio Inventory Optimization
- The need to maintain the representation of products of the same type, but of different manufacturers and price categories (for example, brushes for cats of different sizes, types of wool and price categories or collars for dogs of different breeds). Side by side, with this feature, it is worth mentioning the presence of a large number of alternative products in the assortment of pet stores. The special Leafio Inventory Optimization functionality will help the managers to control the orders for such products that will allow them to select the main product that will be ordered from the main supplier and summarize the demand and balances for all products in the alternative group in the product card. It can and should be used also for substitute goods, changes in the weight of packages, etc. Also, by using analysis and forecasting, the system will help to determine exactly which product should be in stock on a permanent basis and which should be made to order, which should be directly in the store's warehouse and which should be available only at the distribution center.
- The range variability of manufacturers and the high degree of cannibalization are adding additional difficulties in managing the assortment and stocks. Namely, constant novelties. You should monitor them and replenish your own assortment with novelties, simultaneously removing unsold goods from the assortment. To solve this problem, we at Leafio have several solutions and tips. Our system allows managers to:
- assign similar products to the new product, so that the system can automatically use the already existing sales history;
- set the first minimum orders independently, until a valid history for a specific product is collected;
- use the median of the category to calculate the forecasted sales for the new item.
"Now we are working on a clustering module - automatic assignment of similar products based on their name, category, size, weight, sales and other characteristics. That will simplify the manual selection and assignment of similar goods to dozens of novelties," - adds Helen Schepanik - Product Director of Leafio Inventory Optimization.
- A large share of imported goods: most food, accessories, medicines, and toys are produced in different countries. Leafio Inventory Optimization will help you to determine how much and from whom to order.
The demand forecasting module, which is designed for short-, medium- and long-term sales forecasting, will help you to make a decision about the quantity. With a forecast for several weeks or months in advance, we can send an order or pre-order to a supplier. And the PUSH function from the central warehouse will help to easily distribute to the stores not only the goods that have already arrived at the DC, but also those that are currently on the way.
How long it will take for the product to get to you, whether it will arrive on time and in compliance with the conditions of transportation (yes, in the assortment of pet products there are a certain number of products that require special conditions of transportation and storage - fresh fodder and herbs, some medicines and vaccines, etc.), whether the received products match the order - all this depends on the reliability of the supplier. The Supplier Reliability Report module in LEAFIO Inventory Optimization will help you evaluate each supplier on a number of parameters, and the report itself will definitely be an important factor when deciding whether to cooperate with a particular counterparty or negotiate to improve conditions. Our clients from various industries frequently use this report.
Cooperate with suppliers and manufacturers and "knock out" exclusives for yourself - this will help you occupy and keep your niche in a highly competitive market. At the same time, cooperation should not be limited to supply and merchandising only: connect promotional support from manufacturers and large distributors, which they pay a lot of attention to and which has a lot of weight in the PET industry in general.
Promotion in the PET store is more than just an advertising
The share of promotional sales in the field of pet products is very large and can sometimes make up more than half of all sales. This happens because of the above-mentioned features of the assortment, the long shelf life of many products, and the high competition in the market, which, as a result, affects the uniformity of demand. In order to avoid loss of income due to lost sales, as well as not to be left with huge surpluses after unsuccessful promotions, it is very important to accurately forecast demand. Leafio Inventory Optimization has a Promo Tools machine learning module that will help you make a forecast in automatic mode, prepare in time for a planned promotion, and adapt the assortment and stocks to real promotional sales. When forecasting, the system will take into account all important factors: types of promotions and advertising support, duration, cannibalization, seasonality and the history of promotional sales with reference to the degree of discounts.
Take into account fluctuations in demand in Pet retail
Regarding seasonality, surprisingly, it does exist in pet retail, and, for some groups of products, it is quite pronounced. These are, first, veterinary products (medications and flea and tick treatments, as well as vaccines and contraceptives) and accessories (in particular, small breed dog clothing). Some of these goods sell worse in the off-season, and some are excluded from the matrix altogether. Therefore, it is necessary to use the coefficient of seasonality for them. The Leafio Inventory Optimization calculates the seasonality coefficient for categories or alternative product categories under several scenarios (Multi Scenario Seasonality Planning function) in terms of months or weeks (depending on the characteristics of the category), as well as on a daily basis. For the latter, CDW is used –- the coefficient of days of the week, which allows you to track and forecast intra-week fluctuations in demand (sales) of certain goods.
The share of online commerce is growing
As we’ve mentioned, many pet products have long or even unlimited shelf lives. So, why go to the store for a big bag of food that your dog has long been used to if it’s cheaper to order online? The Covid-19 pandemic also made the option to order online not just a choice but a necessity. According to analysts’ estimates, for some product groups, the share of online sales exceeds a quarter of the total volume and continues to grow. So, follow buyers’ habits and grow your online sales. With Leafio Inventory Optimization, you can approach the construction and analysis of online store inventory management in different ways. The most common practice is to create a virtual inventory of an online store and take into account its demand when forming orders from external suppliers. If your sales are omnichannel, manage each channel separately. The LEAFIO platform provides managers with this functionality.
As you can see, the capabilities of the LEAFIO Inventory Optimization platform are very broad and the system itself is capable of self-improvement due to machine learning algorithms. Therefore, the more data it has, the more accurate the forecasts will be and the higher the quality of AI assistance to your employees.
"When starting to work in the system, we download at least 1.5-2 years of statistics on the movement of ordinary goods and preferably at least 3 years of the history of sales promotions. All this is then used for analytics, ADU (average daily usage) calculations and orders. The analytics system is capable of generating dozens of reports, and we are constantly working on expanding the functionality together with our customers, taking into account the specifics and requests of each, - concludes Helen Schepanik - product director of Leafio Inventory Optimization.
For pet stores, the issue of collecting data on purchases is particularly relevant, and assortment analysis is also important. The accumulation of this data will help artificial intelligence build an accurate forecast for your orders.