Over the past few years, brand aggregators have been expanding their presence and influence in the booming e-commerce space. They are perpetually acquiring and consolidating smaller e-commerce D2C firms, and at present, 87% of them are already acquired by February 2022. Aggregators are reaping the benefits of increasing investor appetite by raising billions of dollars in funding. Across the globe, aggregators have raised $2.3 billion in Q1 2021 and cumulative capital of $14 billion by March 2022.
There are many reasons e-commerce D2C sellers are increasingly motivated to cash out to aggregators. The most highlighted agenda’s are – to streamline their operations, address supply chain challenges, and achieve economies of scale.
In this article, we highlight one particular benefit that aggregators bring to the e-commerce value chain : maximizing inventory profitability.
How do they do this? Let’s take a look.
Proactive Inventory Forecasting to Eliminate Stock Outs, Overstock, and Deadstock
One of the primary activities of an e-commerce brand aggregator is to acquire multiple e-commerce businesses at various stages of growth and maturity. Plus, they make these acquisitions at scale which enables them to lower acquisition costs and increase their ROI. They also secure better terms with suppliers and logistic partners to further reduce costs, and increase revenues and profitability. But such acquisitions also increase complexity in the aggregator’s supply chain. These complexities can lead to inventory stock outs across sales channels or result in tied-up capital due to overstock and deadstock. To address these issues, aggregators aim to optimize their inventory forecasting capabilities.
Humble e-commerce establishments often use static or reactive forecasting approaches reliant on past data to predict future inventory performance. One example is the 30 day moving average approach which has a forecast accuracy rate of just 57%. Instead, aggregators use more proactive and hands-on approaches to forecast inventory. For example, they regularly audit sales and inventory data to identify the impact of market volatility on inventory forecasts. This enables them to adjust when it comes to sales fluctuations – say, due to the COVID-19 pandemic – to match, and hopefully even exceed, their regular sales levels.
Aggregators also make an effort to pinpoint temporary pricing variations or stock outs that may be affecting the reliability of inventory forecasts. Doing this enables them to remove these factors from forecasts and accurately place new inventory orders with minimal risk of stock outs or trapped capital.
Optimize Seasonality Inventory Forecasting to Drive High Sales in Every Season
Most e-commerce businesses encounter sales peaks and slumps due to varying shopping trends based on shopping seasons such as Black Friday, Thanksgiving, or Christmas. It’s crucial to do seasonal inventory forecasting to prevent stock outs and costly loss of sales – which many businesses can’t or don’t do.
Seasonality forecasting enables sellers to better understand when they need to buy additional stock based on the purchase patterns in the sales lifecycle. Smaller e-commerce sellers don’t always have the tools and capabilities to do such forecasting. But big brand aggregators do. Aggregators can prepare seasonal forecasts to minimize stock ordering errors and any losses that may result from them. Seasonal forecasts allow them to cut costs by purchasing just the right amount of inventory needed to support seasonal peaks (or troughs).
Since they can make more accurate stock purchases, they can avoid both stock outs resulting in sales declines, and overstocks driving up purchase costs and lowering profits. They can also identify more optimal times to schedule future orders, thus further optimizing inventory costs and boosting profitability.
In the longer term, aggregators analyze seasonal purchase trends and adjust inventory levels based on this understanding. This way, they won’t be unduly influenced by unpredictable market fluctuations or changes in consumer demand. Instead, they can keep an eye on the big picture and ensure that their inventory levels and investments keep the business on the right – and more profitable – track.
Leverage technology to Optimize Inventory Levels
Inventory profitability is closely related to cutting-edge technologies like Artificial Intelligence (AI) and Machine Learning (ML). Brand aggregators leverage these technologies to capture high-quality inventory data. They then analyze this data to identify trends, anticipate buying patterns, and optimize inventory levels to match these patterns.
AI and machine learning tools use multiple data types and sources, including consumers’ locations, behavioral data, transactional history, and social media activity. These tools create algorithms and data models that provide detailed customer profiles that aggregators use to understand their inventory levels, create more accurate inventory forecasts, and match inventory to demand.
Moreover, aggregators can synchronize sales volume with inventory availability by using AI and data analytics. Such synchronization increases efficiency in the supply chain and enables them to make more informed decisions to optimize inventory levels and profitability.
Many aggregators also use cloud-based systems to increase their inventory awareness and monitor inventory performance in real-time or near real-time. These systems generate actionable insights that allow them to unlock new efficiencies in the e-commerce value chain, particularly in terms of inventory optimization and profitability.
Conclusion
Inventory optimization is a crucial driver of e-commerce profitability and ROI. Smaller sellers often can’t deal with the complexities involved in multi-brand, multi-channel e-commerce operations and inventory optimization. Brand aggregators empower e-commerce businesses to achieve their sales and profitability goals by improving inventory forecasts and optimizing inventory availability and ultimately profitability.
As a fast-growing brand aggregator, Ergode has helped dozens of e-commerce companies achieve and maintain optimal inventory levels across multiple brands and sales channels. With our world-class team and AI-based tools, many firms have seen a positive impact on their cash flows, revenues, and profitability. To know how we help e-commerce companies streamline their operations and optimize their inventory profitability, contact us.
