Non-game challenges. Inventory management specifics in Toy Retail

Non-game challenges. Inventory management specifics in Toy Retail

11 min read
Helen Schepanyk
Helen KomInventory Optimization Product Director
Toy Retail

Children’s wish lists to Santa or begging their parents to buy them the latest set of action figures are effective and reliable factors influencing the buying decisions of customers in toy and children's goods stores, and for marketers they often result in successful sales. After all, most parents and family members want to please their children and provide them with the best, or simply to make them happy whenever they can. The toy industry, however, is extremely competitive and volatile. The main culprits behind this volatility are hard-to-forecast, irregular and non-standard demand and very short sales times. Compared to other industries, this causes high costs due to obsolete inventory and lost sales.

In recent years, video games and mobile apps have added to these "classic" factors, which have increased competition for traditional toys, as well as the so-called "age compression" effect, where children spend less time on the main types of classic toys. Due to the impact of the COVID-19 pandemic, children have also had to isolate and attend virtual classes from home, decreasing social interaction.

All this encourages marketers to look for new ways to reach their young customers, integrating the latest technologies into familiar toys and developing creative promotions and sales campaigns.

However, the key to success has not fundamentally changed: to provide the right products in the right quantities within short "windows" and to offer creative yet competitively priced toys combined with a high level of customer service.

We will analyze in this blog what should be paid attention to when building an effective toy sales vertical and how modern software solutions and artificial intelligence can help with this.

Trends vs permanent positions in toy stores

One of the main features of toy stores is the need to offer customers (have in stock) a large range of products.With a wide assortment matrix, even a small store can be like a children's department store. This is often one of the success factors of this business, especially when it comes to neighborhoods where there are many families with children. 

The assortment of a children's store should be considered not only in terms of product categories (although there can be quite a lot of them - toys, games, clothes, shoes, food, accessories, etc.) and price segment. It is also necessary to take into account age groups and the division into "eternal hits" and "hot" trending positions. The first includes, for example, pacifiers and letter blocks, games like"Monopoly", teddy bears, and the second is a line of goods dedicated to the newest cartoons on movie screens. 

This assortment paradox, which is based on simultaneous variability and constancy, complicates the forecasting and planning of purchases and warehouse logistics: it is necessary to purchase both those and other goods in the required quantity so as not to have a pile of unrealized illiquid products in the warehouse in the future. After all, some illiquid goods can be very expensive and can end up as a significant amount of "frozen" capital. In complex, run-of-the-mill cases, up to 60% of the company's reserves can be illiquid. And if it is more or less possible to sell a drawing set or a sandbox shovel, which are present in the warehouse in huge quantities, then finding customers willing to buy a toy character of a cartoon that was popular last year and is hopelessly out of date has almost no chance of selling (for example, the Mulan doll).

toy store

In their work, managers deal with a huge array of data, which must be systematized, analyzed, and constructed, while simultaneously observing all business processes in interactions with suppliers.

This is where modern software solutions come to the rescue, such as the Leafio Inventory Optimization inventory management system.

"Each of our managers served an average of 5-7 stores," says Vlad, co-founder of a large toy retail chain. - Everything was done in Microsoft Excel, as the team had to maintain order schedules, form orders to suppliers and warehouses and manage internal distribution. It was a very time-consuming process and our experts were often lacked of resources. The number of rows in Excel has a limit. Therefore, a new tool was needed."

The Leafio Inventory Optimization system allows you to quickly and visually track and measure current sales and prevents you from ordering products that have fallen in demand. The ability to analyze data for past periods, and seeing the dynamics and trends, will help you understand how much you need to order now. Historical sales and inventory data provide invaluable information that can be used to forecast future sales and account for seasonal fluctuations, especially during the excitement of the holidays. Collect and analyze sales values of past periods, regardless of whether you use system software solutions or not, because the larger the array of input data, the better and more accurately the system will work. Now or in the future, it's up to you.

Kids' stores demand fluctuations

Another important factor that has a direct impact on logistics and sales in kids' stores is the specifics of demand. Most toy purchases are made as gifts to surprise the recipient. Although children are constantly maturing and their tastes change, the vast majority of the game assortment consists of durable goods, which, accordingly, are rarely sold. Add here a certain amount of seasonal items, such as sleds and beach accessories, and also periods with non-standard demand, when the number of purchases exceeds the usual sales patterns, such as the holidays or return to school. 

Do not forget about the above-mentioned trend assortment, the lifecycle and demand for goods that depend on accompanying events and circumstances. For example, the popularity timeframe of a cartoon and the characters that potential buyers will look for in your sales window.

These components ultimately form the extremely complex task of planning orders to suppliers. A mistake in the number and list of goods can lead to surpluses or shortages, and therefore to significant losses, both in cost and reputation. Artificial intelligence in the Leafio Inventory Optimization system will help to prevent errors, which quickly and comprehensively analyzes sales and warehouse stocks in many sectors. As we mentioned above, an important factor in the quality of the analysis is the availability of an array of historical sales data, especially during peak periods. The more such data, the more accurate forecasts the system will provide. Our experts, within the support framework for each project, help the client in solving problems related to inventory optimization.

In collaboration with LEAFIO, we have implemented their inventory optimization software. We have been using it for about four years now, and we are satisfied with the results,” said Vlad, co-founder of the Toy House chain.

Rotation and movement of goods in toy stores

If you manage a chain of toy stores or have an online store with a network of delivery points, an effective and proven method of dealing with the inventory or shortage of products is their movement between sales points or distribution centers in the case of an extensive geographical network, as well as changing display planograms of goods in particular stores. 

This process is not a one-time action, because some toys may sell better in some stores, while others may sell better in others. The key criterion of the movement itself is its profitability. Computer software, rather than a person, will better perform a constant monitoring of product balances. In addition, its goal will be, accordingly, not the personal sales plan of the product manager, but the prevention of both surpluses and shortages of goods in the warehouse.

toy store inventory management

Leafio Inventory Optimization will not only show the current state of stocks and warn about the approaching shortage of certain items, but also perform a multifactorial analysis, calculating the expediency of moving and/or replenishing the assortment of inventory, taking into account the sales trends and past years of experience with the data of specific retail outlets.

"Inventories are the biggest investment, and availability in stores is crucial," comments Vlad. "Forming our business goals at the beginning of cooperation with the Leafio team, we set priorities as follows:

All goals were achieved, and the company continues to improve its results in every way."

Let's add that Leafio's arsenal also includes software solutions for building effective planograms – schemes of visual presentation of store goods or services, the purpose of which is to increase the level of sales. But this is a topic for a separate blog.

Offline and online sales in children's retail

The coronavirus pandemic and lockdowns, during which all children's physical retail stores were unavailable, forced all of us – both sellers and buyers – to focus our attention on online stores. Now it is not just a place where you can find something cheaper, but a full-fledged sales channel with a separate warehouse and business model.

The smart Leafio Inventory Optimization system can simply put a reserve on the product, if it is present at the point of sale chosen by the customer, or can form an order for a supplier or transfer the necessary goods from other outlets/warehouses, while calculating the profitability of these actions. It also knows how to maintain the availability of the required number of certain products, which is required by the dynamics of online sales and the performance of stores as delivery points of online orders.

At the same time, omnichannel analytics can be conducted, that is, separately for offline and online sales, so you will be able to track sales from different points in this section as well.

Online shopping increases the importance of advertising, which can often go beyond specific products. Online makes it possible to sell a greater variety of products without having to worry about adequate shelf space in physical stores. An online storefront is flexible and limitless. All that is required from the seller is to create a convenient and understandable site for everyone. A well-organized online store of large retailers can facilitate an unlimited physical selection and increase sales. Online also allows for customization and personalization that cannot be offered on store shelves. 

Speaking about omnichannel toy sales, we would like to emphasize that, despite the growing share of online purchases, classic toy stores will remain important toy sales channels in the coming years. Although consumers may now prefer to visit hypermarkets or shop online rather than in a specialty toy store, the experience of choosing and physically buying a toy with a child will always be a unique experience. 

Giving consumers not just a product offering but a shopping experience is essential to building a brand. Disney branded stores are a prime example of this. These are not just sales aisles, but real interactive spaces with augmented reality. Most outlets have a movie theater where kids can sit and watch Disney movies while parents shop nearby; dressing areas with mirrors, play areas "by interest", etc. These additions make it more likely that parents will stay in the store longer and therefore spend more money.

Marketing, Engagement, and Artificial Intelligence

Inventory management, as we’ve discussed, is important, but it is only one link in the supply chain, each element of which is an integral part of the business. Software solutions, such as Leafio Inventory Optimization, allow you to quickly and qualitatively analyze large volumes of data while minimizing the impact of the human factor and certain unanticipated circumstances, such as, for example, quarantines. But the program will not solve absolutely every problem. It’s important to stay engaged with suppliers, agree with them on better terms of delivery and return of goods, joint promotions and meaningful support, and optimize your related business processes. 

At Leafio, we improve software development through our partnerships with clients. Each of our client projects is unique and we accompany it from beginning to end with continued support. We have supported the project of the large retail chain "House of Toys" for four years. During this time, Leafio has constantly improved its product with new functions, helps with configurations, and develops new reports. We do this by listening to feedback from retailers and managers who work with our software, tracking chains and the work of different departments, and creating plugins for compatibility with third parties.

"Honestly, I have no idea if they sleep at all because they are on call 24/7. The guys are very involved in the process, and we have no significant problems in working with Leafio Inventory Optimization, but we have a result!", - says Vlad, Co-founder of House of Toys.

We started this blog by saying that the toy industry is very competitive, and we will end by saying that new technology, creative ideas, and teamwork will allow you to stay ahead of the competition! So, together – to success!

Helen Schepanyk
Helen KomInventory Optimization Product Director

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