Flash Sales 101

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Flash Sales 101

The new e-commerce model of flash sales–members-only Web sites offering exclusive deals on everything from luxury goods and fashion apparel to wine–has emerged into a multi-billion dollar business, and is showing no signs of slowing down.

In 2010, the four leading flash sales sites in the United States, HauteLook, ideeli, Gilt Groupe and Rue La La, were predicted to generate $900 million in revenues and double the number of visits to the category over the previous year,” said Krista Garcia, eMarketer research analyst and author of the new report “Flash Sales: What Retailers Need to Know”.

While flash sales are blazing a new trail in e-commerce marketing, this new business model requires a different approach to fulfillment–in order to deliver a unique customer experience–from the point of online purchase to how the merchandise is packaged and shipped and ultimately unboxed once received. This end-to-end process is part of the overall brand experience which is fueling the growth of the flash sales market.

Unlike traditional methods of warehousing and fulfillment, flash sales present a new set of opportunities and challenges, especially related to inventory management.

“Flash sales demand incredibly fast turnaround time for a vast number of items,” said Joal Savino, Executive Vice President of Mercedes Distribution Center. “Because of this, receiving is intense as there are large volumes of unique items, each of which must be identified, barcoded, located and properly packaged, and logged into a ware- house management system.”

In order to keep pace with the high volume of transactions on a daily basis, online retailers and flash sales entrepreneurs need to rethink how stock is organized. Traditional warehouse methods cannot be applied, and often adversely impact profitability and customer service.

Technology and automation such as scanners, intelligent conveyer systems and a flexible warehouse management system (WMS) can only go so far. A new approach and mindset is required to optimize inventory and keep pace with the explosive growth opportunities flash sales present.

Inventory Management: Taking Care of Business in a Flash

To support flash sales fulfillment, the following should be considered to optimize inventory:

Inventory control

Inventory for flash sales is very volatile. There are often many unique stock keeping units (SKUs), and little depth, leaving no room for errors. With little depth, every piece must be accurately accounted for. Each mistake results in a shorted order and dissatisfied customer. The goal of flash sales is to liquidate all inventory, hence extra stock translates into lost sales opportunities.

Receiving

Much of the flash sales inventory originates from overstock, returns, and buyouts. Stock often arrives in terrible condition and accompanied by inaccurate or missing packing lists.

A WMS must be able to create unexpected SKUs on-the-fly, and have a module to accurately reconcile physical receivings to a packing list or purchase order.

In most flash sales environments, product that is received may be at the end of its seasonal cycle, providing a limited window to inventory and sell the merchandise. There is little time for delays. The WMS must be able to track arriving stock from the time it hits the receiving dock until ready for sale. Being EDI compliant is a must to speed receiving and minimize errors.

Samples

The tight sales schedule and limited stock also means that samples for shoots and write-ups must not only be pulled immediately, but quickly returned to stock for the sale. There are typically no surplus units that can be disposed of for sampling. A WMS must be flexible enough to accurately track samples.

Storage

It is unproductive to put stock into dense or deep storage. Because of the fast turnaround of flash sales, in most cases, stock will never be placed in a permanent location. Locations will be reused quickly, so the warehouse needs flexible storage systems that can handle different types of products with no equipment conversion or set up.

With inventory on certain items in the one or two unit range, a single location must be able to accommodate multiple SKUs. As part of the constant depletion and receiving process, the storage systems and WMS must be able to easily handle consolidation of inventory. Entire blocks of pick locations must be consolidated and made available for new stock. New stock should be contiguous to streamline the picking effort when each sale begins.

Physical Inventory

Flash sales require a new way to audit inventory. Annual physical inventories are no longer valid. Because stock in flash sales environments turns over many more times per year than the typical mail order or e-commerce operation, there is increased potential for clerical errors, miscounts, and stocking errors. Continuous cycle counting is mandatory, and any system must be able to count on-the-fly, adjusting for open orders.

Labor

Because flash sales involve older and recycled stock, receiving is a labor intensive process. Quality control is essential to ensure a positive customer experience, mitigating the occurrence of shipping rejected goods. An experienced, trained staff is critical.

Much of the inventory must be untagged, retagged, re folded, rehung, rebagged and reboxed. The many items received, but not on purchase orders or packing lists, must be quickly identified and made available for sale; a process that requires a high level of expertise and commitment. Finally, inventory reconciliations and control require skilled personnel.

Flash Sales Require a New Approach

Similar to airports and other complex, business-critical operation, flash sales have their own unique deadlines, and every day there are new challenges. The rigors of the business require around-the-clock management and specialization in flash sales fulfillment.

As organizations embrace flash sales - either as an extension of existing distribution channels or a stand alone online business model, new processes, techniques and technologies are required to manage inventory, optimize revenue and deliver a unique customer service experience.

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