What goes around comes back around (usually about 365 days later). No matter your product or service, seasonal demand is a common shift for most businesses. Customers naturally desire products at different times throughout the year for a myriad of reasons — be them environmental, cultural, or even financial.
Think about the last time you bought, say, a swimsuit. You were probably prepping for warmer weather, or you were buying the suit at a discount during the off-season (which counts as a season itself!)
For brands, there’s an ongoing challenge to appeal to specific, changing demands amidst different seasons. Subtle shifts in inventory and sales can greatly impact a business's ability to maintain its cash flow, pay its vendors, and scale. Therefore, it’s important that you accurately identify and measure seasonal product demand.
Seasonal product demand describes the changes in consumer behavior based on time. To manage expectations, one must anticipate what a customer will want, when they’ll want it, and at what volume. Each of these variables can change throughout your customer’s lifecycle.
Seasonality can be impacted by literal seasons, (see the swimsuit example), and is often associated with Western holidays (Think: Black Friday Sales). But more often than not, seasonality is affected by a confluence of other, less conspicuous factors. Shifts caused by elections, tax deadlines, and even the life cycles of other products can affect your seasonal product demand.
While distinct for every industry, seasons tend to be highly forecastable and repetitive. A good rule of thumb is if it happened the last time, it will probably happen again.
Season product demand is most critical when it comes to thinking about inventory. Most companies learn to stock products that will be in high seasonal demand well before the actual season hits. Running out of inventory both decreases revenue and can negatively impact the customer’s perception of the brand. (“What do you mean you ran out?!”) Ensuring that enough product is in stock is essential to not only surviving seasonal shifts, but also in taking advantage of higher customer demand.
It’s not just a question of bulking up before the big season — it’s about choosing the exact time to do so. Let’s say you’re looking to prepare for a big summer influx of sales. If you start preparing inventory in the winter, you might compromise a large amount of working capital, and have a worse Q1 than you expected. If you wait too late, of course, you might face a shortage in your warehouse.
Ultimately, the goal is to find a middle ground. That said, many businesses find it more amenable to prepare sooner rather than later. Unless your product has a short lifespan, prepping for a large anticipated sale tends to be easier than playing catch up.
A good habit to get into is identifying which products are especially susceptible to seasonality. Although doing so might take extra research or tracking, approaching your entire inventory with a more granular eye can help you in the long run.
Avoid making blanket decisions in which you increase or decrease your inventory across the board. Rather, categorize which products will likely be affected by seasonality and adjust production accordingly. Moving slowly and methodically through your categorization process will ensure you have the right products at the right times.
Your business is one-of-a-kind, but the seasonality within your category is probably not. Forecasting demand at the industry level can help you to identify seasons that might affect your business and adapt accordingly. Look through purchasing reports from recent years, and stay up-to-speed on your competitors. Even understanding which seasons your competitors are advertising can help inform which ones you need to be prepared for.
Like much of any business, seasonal strategies affect a whole chain of command. As you anticipate new seasons and adapt your inventory accordingly, be sure to give suppliers plenty of notice. They will need extra time to accommodate your seasonality into their schedule. (What you thought would be an April project might actually be, say, a January one for your supplier. Never hesitate to communicate early).
Markets are often very transient; they change over the years. So while you may always see increased sales in a certain time period, they might not always increase at the same rate. As you build out your plans for inventory and sales during seasonal periods, be sure to comb through your strategy with the same rigor you would for your normal plans. Evaluate your consumer’s spending abilities and the health of the broader economy. The thrill of a holiday rarely supersedes broader market trends in consumer spending.
Companies that take advantage of seasonality can find themselves buoyed for the rest of the year. One way that companies can do that is by extending payments to vendors on the extra inventory that they purchase ahead of a seasonal spike.
Settle’s flexible payment terms allow growing companies to pay vendors on an extended basis. This allows companies to maximize their revenue during their busy seasons, and extend payments for that specific inventory for up to 120 days.