Seasonal Inventory: What It Is and Strategies for Managing It

Halloween decor and costumes. Hotdog and hamburger buns. Bathing suits and beach towels. Ice melt and shovels. Nearly every retail business has at least one season that sees a repeatable and predictable spike in demand. While that can represent a predictable source of revenue, it also comes with its own practical challenges, from stocking to marketing to supply chains. This article details top practices for seasonal inventory management, including tools, benefits, tasks, and strategies.

What Is Seasonal Inventory?

Seasonal inventory refers to products that are stocked and sold by businesses during specific times of the year, generally based on the unique and repeatable market demands of a season, whether defined by weather, sports, holidays, or business or educational calendars.

Seasonal demands may be short, such as the lead up to a cultural celebration like Pride, or long, such as the duration of a professional sports season including preseason, playoffs, and championships. For a business, strategic seasonal considerations go beyond the actual occurrence to include ordering lead times and clearing out unsold stock.

Seasonal inventory management is the practice of managing stock based on predictable seasonal demand, including planning sales and campaigns based on seasonal interest and storing items or holding clearance events following the conclusion of the season.

Key Takeaways

• Seasonal inventory refers to inventory purchased by a business to coincide with demand driven by seasonality factors such as weather or holidays.
• Management of seasonal inventory is the practice of considering stock needs and the unique market demands as seasons come and go.
• Seasonal inventory is different from cyclical inventory, which is more dependent on external factors without regular scheduled projections.
• Examples of seasonal inventory management strategies include just in time (JIT); first in, first out (FIFO); and last in, first out (LIFO).

Seasonal Inventory Explained

Seasonal inventory is often confused with cyclical inventory. While the two share characteristics, they represent different business cadences, with unique drivers and elements. Seasonal inventories involve a repeatable, schedule-based rhythm, often on an annual basis. The category can encompass something as broadly recognized as Halloween as well as more niche occurrences, such as how industries often schedule professional conferences in the late spring or early summer. Because seasons can be predicted and planned for, market demand may be factored into inventory and marketing decisions.

On the other hand, cyclical inventory refers to repeated circumstances that are not necessarily on a regular rhythm but instead driven by external factors. For example, global and national economic factors create dynamic circumstances, which can lead to cyclical rises in unemployment. In turn, that can reduce disposable income and spending on discretionary goods; businesses can respond to this cycle by making inventory decisions that focus more on essentials. While both seasonal and cyclical inventory benefit from strategic preparation and plans, cycles do not begin and end at set intervals.

Examples of Seasonal Inventory

Examples of seasonal inventory differ based on the type of season. The following list offers a range based on the demands of specific seasons:

• Clothing and accessories: Shorts and tees in summer, parkas and scarves in winter is just the start. Cruise and spring break season might offer an opportunity to move swimsuits that didn’t sell in August, while back to school sales can entice buyers to pick up fall merchandise in late summer.
• Food and beverage: From cookout items such as burgers and chips in the summer to turkeys, baking supplies, and comfort foods during fall and winter, grocers supplement year-round items with seasonal stock.
• Home goods: Grills and BBQ accessories, patio furniture, rakes, leaf blowers, shovels—home goods and hardware stores have a rotating cast of seasonal offerings.
• General merchandise: Christmas decorations and themed accessories often hit big box stores in October, overlapping with Halloween and Thanksgiving items. Hanukkah, July 4, and Valentines Day have their own specialty items, as do regional celebrations.

For all these categories, solid seasonal inventory management anticipates consumer behavior by preparing inventory, promotions, and sales to sync up with demand while working to predict trends in consumer preferences.

Why Is Proper Management of Seasonal Inventory Important?

For any business selling products that have fluctuating demand, proper management of seasonal inventory is not just a best practice—it’s a critically important contributor to profitability, operational stability, and long-term success. Businesses consider many practical elements as they plan, including expected sales, economic conditions, physical storage space, supply chains, and warehouse logistics.

Factors contributing to the importance of seasonal inventory management include the need to

• Minimize overstocks: When a business holds an excessive amount of inventory for any product, that ties up capital and increases holding costs. By minimizing overstocks, businesses can optimize their use of cash while also reducing the risk of needing to warehouse or liquidate themed or perishable inventory.
• Reduce storage costs: Unsold seasonal inventory requires storage space, a scarce commodity for many businesses. By thoughtfully approaching seasonal inventory, companies can make the most out of storage resources by prioritizing more profitable products.
• Increase profitability: Businesses may be forced to dispose of unsold seasonal items by offering deep discounts or selling that stock to liquidators, which eats into or even eliminates profit margins. Excess storage costs also erode margins.
• Improve customer satisfaction: For retailers, ensuring customers can buy what they want, when they want is key. For seasonal items, the purchasing window is often brief and intense—think of a run on air conditioners or ice melt or a fan buying merchandise for a big game. Solid seasonal inventory management improves customer satisfaction by preventing stockouts.
• Create a competitive edge: A highly optimized operation gets the most out of its resources. This in turn creates a competitive edge that allows businesses to move quickly via a combination of having more available cash and space plus the experience of successfully addressing short-term inventory and temporary demand spikes.

Types of Seasonal Demand

Seasons come in all types and durations, and they can be acknowledged by popular culture or specific to an individual sector. Demands may also be regional, which adds both opportunities and challenges for larger retailers. Here are a few common types of seasonal inventory cycles retailers may encounter:

1. Holiday demand:

   Halloween, Christmas, and July 4 are all types of holidays that create unique demands for celebrations, decorations, or gift giving.

2. Cultural demand:

   Cultural celebrations such as Chinese New Year and Pride create marketing and customer engagement opportunities. These can generate a need for specialized inventory for gatherings and gifts.

3. Weather demand:

   Seasonal weather significantly shifts how consumers approach their purchases, be it clothing, groceries, weather equipment such as umbrellas, or seasonal sports needs. Unpredictable but more frequently occurring weather events like an ice storm in Texas or a December heat spike in New England can spell opportunity for prepared sellers.

4. Agricultural demand:

   While some produce is available all year round, other fruits and vegetables are specifically seasonal. That seasonal supply can impact anything from general consumer availability to specialized dishes such as in-season pies at a bakery.

Seasonal Inventory Challenges

Seasonal inventory management requires thoughtful decisions and careful attention. Otherwise, it’s easy to start missing out on benefits and end up with dissatisfied customers, lost revenue, or overstuffed warehouses. The following are some of the most common seasonal inventory challenges:

• Poor trend forecasting: If inventory decisions are based on outdated or inaccurate data, the result is often seasonal inventory mismanagement. Vetting data to ensure quality input and analysis can maximize the accuracy of trend forecasts.
• Overstocking: Just because sales spike in a season doesn’t mean that demand is limitless. Careful analysis ensures that sensible quantities are purchased to limit overstocks.
• Stockouts: The opposite of overstocking is a stockout, where you run out of popular items. During periods of peak season demand, restocking items like shovels or air conditioners can be a challenge. Businesses will use demand forecasts to balance cash and storage availability and minimize both stockouts and overstocks.
• Supply chain rigidity: Supply chain logistics constraints impact all inventory planning, but the stakes are higher with seasonal items. If supply chain issues cause delays, that could throw off a retailer’s entire seasonal strategy. To stay ahead of this, businesses often closely coordinate with suppliers beginning months in advance to identify potential issues and where needed, plan for alternatives.
• Storage and handling costs: It can be expensive to store and handle inventory. If businesses don’t accurately anticipate these costs, expected revenue and profit margins may not materialize. In addition, some items have special storage needs, such as temperature or security requirements. Successful businesses keep these variables in mind when budgeting for and scheduling seasonal inventory.

Inventory Management Strategies for Seasonal Inventory

A business’s approach to seasonal inventory will depend on factors such as type of event, budget, historical demand, and storage availability. The following are some of the most relied on management strategies for seasonal inventory:

Just-in-Time Inventory

By stocking to meet only immediate demand, a just-in-time (JIT) strategy minimizes budget risk but also leaves businesses susceptible to unexpected demand spikes or supply chain problems.

Safety Stock

Planning inventory involves ordering a percentage of extra stock as a safety net to meet demand. A standard formula for calculating safety stock compares maximum predicted sales and lead times against average historical sales and lead times. Businesses may scale this based on factors such as budget and storage space.

FIFO

“First in, first out” planning moves oldest stock first. This approach is particularly useful for businesses dealing with perishable goods and products with limited life spans. Using FIFO minimizes the risk of obsolete overstock, though it can cost businesses more money over time versus other approaches as cost of goods sold may not reflect fluctuations in the market.

LIFO

“Last in, first out” planning moves the newest stock first. LIFO offers a financial incentive for businesses as it allows for tax advantages. However, because LIFO requires current purchases, the cost of goods will reflect the current market, for better or worse. LIFO overstock may also have very old items, which can reduce the probability of selling them.

ABC Analysis

Using ABC Analysis, products are broken into A, B, and C tiers for high, medium, and low priority stocking. This approach delivers flexibility and can reflect annual changes in trends and market demands.

Seasonal Stockpiling

Planning inventory to ensure a robust amount of product so businesses do not have to worry about scarcity is the opposite of just-in-time planning. This method requires businesses to have appropriate warehouse space as well as a logistical plan for dealing with excess inventory at the end of the season.

Economic Order Quality (EOQ)

Planning built on an EOQ formula balances the total cost of ordering and holding inventory. EOQ is a data-driven approach, and thus provides one of the most reasonable estimates for purchasing. However, EOQ comes with limited flexibility, as it minimizes the ability to respond quickly to trends and unexpected factors.

Strategies for Managing End-of-Season Inventory

Businesses must decide what to do with remaining stock when demand shifts. The following are the most common and effective strategies for dealing with remaining inventory as seasons end:

• Leverage clearance and flash sales: Discounts and are designed to quickly move stock by appealing to bargain hunters. Businesses can gradually increase markdowns over time to ensure inventory moves.
• Repackage unsold inventory for next season: Some seasonal merchandise can be evergreen year upon year. For example, while themed and branded seasonal merchandise, such as Halloween tie-ins to a popular current movie, may have limited life, other types, such as traditional haunted house decor, can be held for next season. When making purchasing decisions, businesses can scale volume between inventory that can propagate forward and items with fleeting appeal.
• Donate unsold inventory: Businesses can quickly disperse excess inventory by donating it to charitable organizations. This aids those organizations while also providing a tax write-off. Donations need proper documentation for tax purposes. In addition, businesses should consider the types of items nonprofits accept when making purchasing decisions, as organizations will have donation guidelines.
• Sell unsold inventory to outlets: Clearance outlets specialize in buying overstock and selling them at a markup. This is a sensible way to deal with remainder inventory, though businesses need to establish relationships with outlet buyers to know what they are willing to bring in and at what price.

How to Improve Seasonal Inventory Management

Like any business process, seasonal inventory management can always undergo process improvements to increase profit margins and reduce risk. These improvements can include data-based and technology-based approaches as well as practical labor and resource strategies. The following covers some of the most common approaches for improving seasonal management:

1. Lean on your historical data.

   A business's historical data may be the most powerful process improvement resource available. Customer variables include repeat purchase frequency, categorical elements like geographical and demographic variables, buying patterns, and marketing campaign effectiveness. Parsing this data for inventory forecasting to extract actionable insights often requires an analytics platform, and the latest analytics tools can use AI to derive hidden insights and auto-generate reports.

2. Augment first-party data with third-party data.

   Historical data is the first step, but it may not be enough. Data analysis can be augmented through other means, such as industry, analyst, and public/government data sets. By combining a range of data, businesses can get a more comprehensive view for forecasting and analysis.

3. Optimize storage to account for seasonal products.

   The practical side of seasonal inventory is that it’s going to take up space for a period of time. This creates limitations on other types of storage, so businesses should have a strategy in mind for handling this with their warehouse layout. Options include making a dedicated seasonal section of warehouses/backrooms as well as renting external storage as needed.

4. Cross-train employees for a more efficient labor force.

   Certain departments may see more activity during specific seasons. By cross-training employees, they can gain skills that apply year around and for any phase of a particular season, including post-season clearance and storage.

5. Bundle slow movers with high-performing products.

   Just because an item is in season doesn’t mean that it will necessarily be in high demand. Based on how sales are moving, certain packaging and combinations can be utilized to combine high performers with slower products. This allows businesses to push stock with an eye on having minimal post-season inventory to deal with.

6. Consider presales or preorders.

   Presales are a great way to gauge market enthusiasm while lining up guaranteed orders. Businesses can drive these types of sales by including some sort of bonus or reward for each presale, such as a coupon, associated product, or gift card.

7. Use real-time data to pivot quickly.

   Real-time inventory insights allow businesses to assess what is moving fast versus what is staying on the shelves, and why. This type of analysis can go beyond simple stock numbers; it can provide insights into marketing campaigns, shelf visibility, and sale engagement. For stock that is moving slowly, smart adjustments can push sales to minimize leftover products.

8. Analyze your inventory strategy after the season is over.

   While seasons tend to follow patterns, trends and outside factors can create unique variations from year to year. After the season ends, businesses should do a detailed post-mortem examining products, campaigns, outreach, and pricing, all cross-referenced with outside trends. This will allow businesses to get a jump start on next year’s season, with the goal of driving profits even further.

Technologies for Managing Seasonal Inventory

Seasonal inventory management starts with tracking historical data. From there, businesses can take advantage of technologies that provide further insights. The following are recommended tools for assisting in seasonal inventory management.

• Ecommerce integrations: By integrating ecommerce (web, app, or both) into an inventory system, customers can get a real-time look at availability. This convenience allows customers to order ahead for later pickup or shipping. Flexibility is crucial to modern retail businesses, and ecommerce integrations empower customers while providing detailed data about sales, views, and searches.
• AI for forecasting: AI-powered forecasting tools can ingest large amounts of historical data—both from a business and from the industry at large—to derive patterns, insights, and projections in an efficient manner. AI forecasting tools often process data volumes at speeds larger than manually possible.
• Inventory management software: Robust inventory management platforms often come with the ability to view real-time data, along with automatic notifications for low/excess inventory situations. This is particularly useful when inventory is shared among locations.

Capitalize on Seasonal Demand with NetSuite Inventory Management

NetSuite Inventory Management provides small and midsize businesses with a powerful real-time view across sales channels. Track records, audit sales, and optimize inventory levels, even across multiple locations, to avoid stockouts while maximizing profit margins. With NetSuite, businesses can take control of their inventory for seasons, cyclical demands, and the long haul.

Seasonal inventory demands can provide a range of challenges for businesses. At the same time, they present opportunities to move products quickly, generate related sales, and increase customer engagement. The key comes down to smart seasonal inventory management. By using the appropriate strategies and tools for your business, seasonal inventory can drive revenue and traffic.

Seasonal Inventory FAQs

What is an example of seasonal stock?

Some examples of seasonal stock are Christmas trees, swimsuits, umbrellas, and Pride-themed merchandise.

What is the difference between seasonal and cyclical demand?

Seasonal demand occurs at repeatable intervals based on the calendar that are regular enough to build campaigns and strategies around. Cyclical demand occurs with some regularity but may not necessarily be based on a calendar year; in fact, cycles can often exceed a year and be dependent on external factors, such as unemployment, rather than repeatable intervals.

What is a disadvantage of seasonal products?

While seasonal products may be in high demand for a temporary period of time, they may have limited overall marketability. This is why themed merchandise, such as Christmas clothing, is often marked down on clearance immediately after the holiday passes.

When should seasonal inventory be used?

Businesses should integrate a seasonal inventory strategy when they recognize a repeatable cycle of product demand. This cycle may be a popular and known quantity such as Halloween, or it may be something recognized only internally.