The global pandemic has expanded the definition of perishable inventory. A word that once applied mainly to food and beverages, “perishable” now encompasses a broader scope of goods that, left to languish, can take a serious bite out the bottom line for a small business. Items like traditional back-to-school gear for in-classroom learning, excessive quantities of hand sanitizer, and even lipstick now fall into this category.
During the COVID-driven lockdowns, JP Morgan says consumers bought a lot of household cleaners and soap, vitamins and supplements, hair color, and coffee. They also bought fewer cosmetics and sun care products, both of which were seen as superfluous during a period when more people were working, learning, and socializing from home. The latter are both perishable items, which means sellers had to find new ways to discount, bundle, and/or donate the goods before they expire. The fashion industry, for which inventory is seasonal, has also taken a particularly hard hit, since fewer people are attending events or working in offices. According to McKinsey, this consumer shift has affected the whole supply chain, from companies that harvest the fibers used to make textiles to shop assistants and fashion retailers.
How do small businesses navigate this environment? Inventory is a significant expense for any small business that sells or uses products. In the absence of historical demand-forecasting data to refer to (i.e., there’s never been a massive remote learning movement or a global pandemic of this magnitude), companies must reassess their perishable inventory management strategies and walk the fine line between stock-outs and overstocks.
5 trends shaping the situation
Here are five trends that are contributing to small businesses’ struggles to maintain and manage their perishable inventory right now:
Sellers aren’t stocking up. Wanting to preserve cash, companies are keeping their stock to a minimum. This reverberates up the supply chain, with everyone from the retailer to the wholesale distributor to the original manufacturer now stuck with more perishable stock than normal.
Prices are increasing. Forced to contend with higher transportation and storage costs — not to mention the financial impacts of COVID-19 on their workforces and workplaces — companies are raising the prices on their products. According to BLS, supply chain issues caused increased volatility in prices in the months following COVID-19’s emergence in the U.S., with meat, fish, dairy, and eggs especially affected by the shifting economy brought on by the pandemic. This has increased inventory carrying costs for small businesses that may get stuck with items they can’t offload as quickly as they’d like.
Supply chains are still disrupted. There may be toilet paper on store shelves now, but there are still some serious supply chain disruptions happening worldwide. A few of the raw materials and products in high demand and short supply are N95 face masks, resin, electrical fuses, and small steel goods. As a result, small companies are being forced to stock up on goods “just in case,” but whether those products will sell within a desired timeframe remains unknown.
Consumer shopping behaviors are changing. According to the National Retail Federation (NRF), 71% of consumers are social distancing, and an even higher percentage are avoiding brick-and-mortar stores right now. Others are stocking up on groceries and household items with the aim of protecting themselves and their families. These pivots directly affect a small business’s ability to forecast demand and stock up accordingly (without going over).
eCommerce is booming. A trend that was already well underway pre-COVID, online selling ramped up significantly in 2020. This only added to the mystery around changing consumer behaviors and pushed many small companies to shift their focus to online sales. Evidence suggests these COVID-driven behaviors are likely here to stay. Managing perishables in the fickle eCommerce selling environment — where return rates are higher than brick-and-mortar sales and where customers don’t get to see the goods firsthand until they arrive on their doorstep — requires a certain finesse that some companies are only now learning to manage.
The long-term view
As they work to put out daily inventory management fires, small business owners should also keep the longer-term view in mind, knowing that more shifts are likely to occur before we’re out of the woods with the COVID-19 pandemic and looking to a brighter future.
To track perishable inventory, companies can use manual, automated, or hybrid inventory management systems focused on accurately matching supply with demand. And while such forecasts naturally become hazy in the midst of COVID-19, they can still help provide a clear picture of what customers will need and what your company has to have on the shelves (or be able to source quickly) when the orders come in. With alerts that indicate when supply is low on certain products, for example, automated inventory software helps ensure that the goods are in stock when a customer asks for them.
Because good inventory management links directly with effective cash flow management, small businesses that regularly review sales patterns, use accurate forecasting, and leave in some cushion for the unexpected will be best positioned to both navigate these uncharted waters and address the next potential disruption.
Square has the tools to run your business — even when it’s not business as usual. To help businesses make the shifts they need, we partnered with Forbes to assemble a team of expert advisors. By sharing firsthand experience, our advisors are helping businesses build skills and plan for what’s next. See how Square works, and learn more about the Small Business Advisory Team.