Retail CFO Study: Inventory Accuracy, AI Are Top of Mind in 2024
Retailers need to do better to meet their customers’ needs, and one place to start centers on the supply chains.
Retail CFOs have tempered outlooks for 2024 as revenue expectations slide while profitability expectations increase. That’s according to a BDO 2024 Retail CFO Outlook Survey, which notes that retailers need to do more than just improve pricing strategy and cost cutting. That’s where technology tools involving inventory management can play a huge role.
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Seventy percent of retail CFOs said they will likely raise prices again in 2024, while 60 percent said they are only planning on “slight price increases.” But that comes at a time when consumers continue seek out deals and discounts. And that’s a move that could drive customers to lower-priced competitors, or result in customers not making a purchase at all, according to the BDO report.
One way to navigate the pricing game is the use of cost optimization strategies supported by AI. Forty-eight percent of CFOs surveyed plan to leverage automation and AI in 2024, while another 45 percent will be reevaluating their sourcing strategies.
But that’s not all the tech tools are good for. According to the 100 CFOs polled from companies with revenues between $250 million and $3 billion or more in October 2023, retailers are tired of inventory inaccuracy. And to better forecast inventory needs, 55 percent are turning to technology to deploy scenario modeling and predictive software this year.
While AI tools can help CFOs deliberate on the timing of discounts, BDO experts conclude that leveraging predictive analytics can help companies pick stock-keeping units (SKU) that sell. Moreover, generative AI can help with developing SKU rationalization plans and inventory roadmaps to better predict and prepare for necessary inventory changes. BDO also noted that few respondents identified AI bias and data privacy as top risks. The consulting firm said retailers can establish safeguards to mitigate risks, such as “training their generative AI with representative data, conducting routine testing of data sources, and codifying responsible AI policies associated with its use.”
The study indicates that inventory accuracy and forecasting is top of mind for retailers this year. And investment in increasing warehouse operations efficiencies also can help improve inventory management. But for retailers, the real challenge for them is less about a lack of understanding of customer demand to inform on inventory decisions. Rather, the issue is the lack of timeliness, which impacts how quickly retailers can act on the data.
“Retailers have come a long way in understanding what their consumers want, but the demand data used is often not far enough in advance to make real-time, let alone predictive decisions, with confidence,” the BDO team concluded. “Compounding this is the speed at which retailers analyze said data and communicate with suppliers—especially those overseas—with enough time for them to act on it.”
BDO’s retail team concluded that for most retailers, their production and inventory lifecycle systems aren’t set up to pivot in lockstep with consumer trends as they cycle—something that’s required if they want to do better. And one way retail CFOs are improving inventory accuracy and restocking of shelves faster is with in-demand products that use advanced technologies, such as scenario modeling and predictive AI.
Scenario modeling allows retailers to see how specific events will impact their network. That doesn’t mean total reliance on technology to solve retailers’ supply chain issues on timing. There’s a disconnect between sales functions that analyze consumer data to inform on upcoming trends with inventory and merchandising functions that include communications with suppliers. Resolving this disconnect can help retailers accelerate inventory-decision timing and increase sell-through.
And finally, digitizing supply chains and improving network agility can help retailers manage the higher costs of goods sold (COGS), a key concern in 2024 given what appears to be a pullback on discretionary spending. Fifty-three percent of CFO survey respondents said improving supply chains and visibility remains the top strategy to address higher COGS. On the agenda is a change to supplier strategy, such as nearshoring or finding alternative suppliers, to manage costs and improve supply chain lead time and resiliency.
The study also found that 46 percent of respondents expect to be more involved in conversations around ESG strategy and execution, addressing such issues as the Uyghur Forced Labor Prevention Act to meet increasing consumer demand for transparency on product manufacturing. Shifting work to sustainable suppliers can help in this effort.
“For many organizations, sustainable supply chains are pivotal for growth and success. There are multiple ways to shift toward sustainability, such as teaming up with new suppliers to revamp products or optimizing the manufacturing network to reduce your carbon footprint,” R.J. Romano, BDO’s supply chain managing director, said.
BDO said other tactics retailers should consider to overcome supply chain hurdles include reassessing the necessary skillsets for supply chain roles, as well as proactively managing disruption when switching suppliers.
Separately, BDO said another general tactic that could help with profitability is a relocation of the store base, such as moving out of major malls to neighborhood storefronts to be closer to target consumers, particularly since many work from home and no longer commute from dense areas where the larger format doors are located.
