DEEPER DIVES: Stop Guessing, Start Knowing

Good Morning,

First, as always, thank you for joining.

Today’s newsletter gets into three totally different topics. I’ve shared this before, but with so many people on the newsletter (and from different parts of the retail and eCommerce value chain) it isn’t always easy to hit everyone’s wants.

All three of my articles today share something different. Jump to the one that speaks to you the most.

For any smaller retailers or D2C brands based out of Toronto, I’ll be back in town working with different clients (and making a number of new pitches) from March 31 through April 3rd. If you feel like I might be able to help you, reach out. Always happy to connect and have a conversation.

And as always, no strings.

Here’s what this issue brings:

• Inspired by a recent conversation, I give you an A to Z primer when it comes to forecasting and setting up your initial inventory when you are launching a new D2C brand
  

• FedEx posted its Q32025 earnings last week. It showed the first YoY growth in F2025. But despite some decent numbers, the stock dipped as they pulled back on their future estimates. I’m breaking down their current situation and what it means for other players in the last mile delivery space as well
  

• Nike is still struggling across the board. I use their current situation to provide smaller brands with a sense check to make sure that you never forget how consumers are changing in a world that is rapidly shifting into one dominated by social commerce.

Your 101 Primer To Forecasting & Inventory When Launching A New D2C Product Brand

For new DTC brands, forecasting is one of the biggest challenges you’ll face.

You have to “predict” demand without historical sales data.

To make matters worse, consumer trends change fast these days.

If you don't keep up, your cash flow will suffer and your business can end up in a bad spot.

While established brands can rely on past performance, new brands must build forecasts from alternative sources.

Effective forecasting should:

• Prevents stockouts that disappoint customers and damage brand reputation (crucial at an early stage)

• Avoids overstocking that ties up capital in unsold inventory (a mistake too many new brands make trying to hit the next MOQ tier)

• Enables accurate production planning with internal/external manufacturer(s)

• Facilitates smooth operations with your 3PL partner of in-house fulfillment

• Establishes realistic financial projections

Inaccurate forecasting usually carries significant consequences.

Overestimating demand means capital invested in excess inventory that may require discounting.

Underestimating means missed sales opportunities and potentially losing customers to competitors who can deliver immediately.

Successful forecasting hinges on deeply understanding your market dynamics, competitive environment, and consumer behaviour. Identifying your ideal customer and assessing the overall market potential provides the necessary context for projecting your sales and inventory needs.

Building Your Initial Forecast

Without historical sales data, market insights are critical.

Begin by clearly defining your Total Addressable Market (TAM).

Understanding who your ideal customer is forms the foundation of all your marketing and sales efforts.

You’ll want to use demographic (age, location, gender, income, education, occupation, etc) and psychographic data (the “why someone will buy” - attitude, values, lifestyle, etc) to develop your ideal customer profile (ICP).

By properly building your client profiles, you’ll be able to have an idea that your TAM represents - the maximum potential market size for your product or service.

You’ll also want to understand how your TAM is growing. The idea of current state and future state over a period of time.

In addition to the TAM, there are other market insights you would need to understand. They are:

• Competitor performance and market share

• Industry seasonality patterns and trends

• Customer purchasing behaviours and preferences

• Socioeconomic considerations

Pre-launch Activity

Whenever possible you want to use additional strategies to collect as much direct user feedback as possible to help build out your plan.

Leverage data from different sources to validate your assumptions on your potential customers and their intent.

Use feedback you get from website and landing page traffic and conversion rates, email signup rates and content engagement, social media following and engagement metrics, pre-order numbers (if you were able to successfully penetrate a customer base), and focus group or survey responses.

All of these things will help you better understand your customers and build and refine your assumptions at the core of your forecast activity.

Selecting and Applying Forecasting Methodologies

With your input data ready, you can now estimate how many sales (orders/units) your brand might generate in the initial launch period.

I recommend approaching this in two ways – a top-down and a bottoms-up approach. Compare the results to get a well-rounded view of the plan.

Top-down

This method starts with the big-picture market and narrows down to your business.

Begin with the total market size and then estimate what share you can realistically capture initially.

Too many new companies rely on the work they have done on the product or on their personal perception of it.

The reality is as a new brand, you don’t have any consumer or market trust.

No one knows anything about your brand, you or your quality standards.

Remember that “trust is earned” and your initial growth will be slower than you’d like. For a brand-new entrant, your assumed market share should always be modest.

The formula to estimate your initial sales is straight forward:

TAM × Target Market Percentage × Conversion Rate × Average Order Value

Here’s a simple example.

Let’s say your market size is 500,000 potential customers, and you conservatively target capturing 3% of that market initially, with an anticipated conversion rate of 2% and an average order value of $75, the calculation would look like this:

500,000 (TAM) x 3% (market share) = 15,000 potential customers

15,000 potential customers x 2% conversion rate = 300 sales

300 sales x $75 average order value = $22,500 forecasted revenue

Bottoms-up

This approach involves estimating sales based on your marketing and sales activities. Project your website (or social) traffic based on your marketing plan and then apply an estimated conversion rate to determine the number of orders.

The formula here is a bit different:

Channel Traffic × Channel Conversion Rate × Average Order Value

You can apply this same formula to the different sales channels you are leverage (e.g. your direct website, your social media feed, local/partner promotions, etc)

In addition, you would want to capture any additional lift or gain that you will (hopefully) have from introductory pricing.

Promotional Sales Lift = Base Sales × Promotion Lift Percentage

These two results then get added together and applied to your monthly sales forecast.

By comparing the results of both methods, you can identify potential discrepancies and refine your assumptions to arrive at a more realistic sales forecast.

Seasonality And Timing

When people hear the term “seasonality” they think weather.

This isn’t the right frame. While try that the weather can (and does) play a role in how consumers view or use certain products, it isn’t the core driver of the concept.

In demand forecasting, seasonality refers to predictable patterns of demand fluctuations that repeat over a specific period, usually a year, due to recurring events

Even new brands must consider seasonal factors.

This means that you’ll want to make sure that you are accounting for things like industry seasonality patterns, adjusted forecast based on launch timing, day-of-week variations for planning purposes.

A lot of products these days are starting to fall into “subscribe and save” type situations. These types of situations can be very beneficial for product planning, however it’s important that you don’t over-index your plan on this type of performance.

For a new brand, you don’t have the required level of consumer trust to quickly access consumer’s subscription wallet.

In addition, consumers are more inclined to used these models ONLY AFTER they have seen the product results and are happy with them.

With that understanding, you can now add seasonality into your forecast strategy.

Seasonally Adjusted Forecast = Base Forecast × Seasonal Index

Where the Seasonal Index represents the expected performance of a given month compared to an average month (e.g., December might be 150% for gift items).

Scenarios Are Essential

Lastly, you will want to create multiple scenarios to support your end-to-end forecasting and planning process.

Never rely on the numbers only from one path - especially if you are just launching your brand and first product.

A typical approach will be to have (at least) 3 scenarios to help address the uncertainty you are facing.

1. Conservative case (50-70% of base forecast)

2. Base case (your most likely forecast)

3. Optimistic case (130-150% of base forecast)

For each of these scenarios, we then do the work to calculate the inventory requirements and the financial impact / resources that are required.

Planning Inventory

Once you have a reasonable sales forecasts for your scenarios, you can translating that into the plan’s inventory requirements.

This step involves considering lead times, safety stock, and minimum order quantities.

The basic fundamental inventory formula to apply to each scenario is:

(Forecasted Monthly Sales × Lead Time in Months) + Safety Stock

Here is how you would build out a formula for your lead time to plug into the formula above:

Total Lead Time = Production Time + QC Time + Shipping Time + 3PL Processing + Buffer (10-15%)

You may end up needing a few different variations of your lead time calculation depending on different buffer percentages or if you want to build in reductions in shipping or processing time as your partners get more familiar with your product and processes.

Next is your safety stock.

Safety stock is the extra inventory you keep on hand to buffer against unexpected increases in demand or delays in your supply chain.

(Maximum Daily Sales x Maximum Lead Time) – (Average Daily Sales x Average Lead Time)

Ok, that seems complicated. But it’s not that bad once you apply numbers to it.

Here’s an example:

If your expected maximum daily sales are 20 units, the longest lead time is 30 days, average daily sales are projected at 10 units, and your typical lead time is 20 days, your calculation would be:

Safety Stock = (20 units/day x 30 days) – (10 units/day x 20 days) = 600 – 200 = 400 units

Initially, I recommend setting your safety stock at approximately 50% of your first-month sales projection to mitigate risks effectively.

*Note: Safety stock calculations should get more robust and use actual sales data as you build it up. A more mature and robust formula would take on a different structure that could be something like Safety Stock = Z × σ × √L (where → Z is the service level factor, σ is the standard deviation of demand and L is the lead time in months)

MOQs

Your manufacturer will likely have minimum order quantity requirements for production.

It’s important to understand how the MOQ (minimum order quantity) aligns to your different forecast scenarios as you may find that you’ll have ample additional stock without specifically adding in things like safety inventory.

MOQ Months of Supply = MOQ ÷ Monthly Forecast

Try negotiating smaller initial orders or finding manufacturers with lower MOQs if the MOQ exceeds 3-4 months of your forecast.

As a new brand, you need to mitigate your risk and preserve as much cash as possible. Don’t get stuck holding too much inventory.

Ongoing Monitoring and Adjustment

Regularly comparing actual sales data to forecasts is critical. You need to continuously monitor your actual sales data, compare it against your forecast, and be prepared to make adjustments as needed.

By using a data-driven approach and remaining adaptable to your market, you will be able to continuously improve the accuracy of your forecasts and build a stronger foundation for your sustainable growth.

Other things that you should have in place are:

• Sharing your forecast assumptions and scenarios with your partners

• Develop contingency plans for each of your scenarios

• Set trigger points for production adjustments

• Schedule regular forecast reviews at key growth stages to re-evaluate and refine your inputs

Supply and demand planning incorporates product forecasting, transportation planning as well as supply schedules. A successful implementation needs to take all of these variables into account.

Closing Thoughts

Launching a new DTC brand isn’t easy. While your initial forecasts won't be perfect, they are a crucial starting point to guide your decisions on inventory and marketing spend and can cause you to crater if you aren’t careful.

By following a structured process, and being ready to adapt, you significantly increase your chances of a successful launch with the right amount of product on hand.

Start simple, and iterate.

Lower-Tier Services Are Pressuring Overall Revenue Quality

FedEx shares fell 11% (dropping to a two year low) after the company announced its quarterly earnings last week.

The company was upfront about the challenges that they (and others) are facing in the market.

Marco-economic uncertainty, inflation, global trade policies and known business impacts were all reasons that supported the shift in the future guidance.

There was a noticeable difference between the Federal Express and FedEx Freight business units (it’s probably a good thing they had already announced the spin-off of the freight division - still planned for June 2026).

Here’s a quick snapshot of the performance of each:

Federal Express

• Revenue: $19.2B (↑3% YoY).

• Adjusted Operating Income: $1.42B (↑17% YoY).

• Drivers:

  • Volume increase in U.S. deferred and international export packages

  • DRIVE cost savings and improved base yield

  • Benefits from Europe performance and Tricolor strategy

  • Offset by USPS contract expiration ($180M headwind) and weather ($70M headwind)

FedEx Freight

• Revenue: $2.1B (↓5% YoY).

• Adjusted Operating Income: $261M (↓23% YoY).

• Headwinds:

  • Lower fuel surcharge revenue

  • Declines in weight per shipment and overall volume

  • Soft U.S. industrial economy

When it comes to operational performance and cost savings, there was nothing new reported.

They continue to get value from the DRIVE program ($600M in Q3 savings, on track to deliver $4B in total savings vs. FY23 baseline), the Network 2.0 implementation (5 U.S. stations optimized YTD; 45 more planned for Q4), and the Tri-Color air stragegy.

The most telling news though from the earnings call, and what every service provider should be paying attention to was the yield reporting.

Yield = revenue per package or revenue per unit of weight.

It's a measure of pricing power and revenue quality (how much money FedEx makes per shipment).

The messages was this… US Domestic package yield was flat. This means there was no meaningful change in revenue per domestic package compared to last year.

Even with volume growth, the average revenue per package didn’t increase.

What this is confirming (that pretty much everyone knows), is that shippers are trading down on their services, opting for cheaper (and slower) services to manage their fulfillment costs.

To bring it back to what I’ve been sharing with all of you for the last few months, pricing pressure in the market isn’t going away.

Any provider that is “buying” volume by providing a low cost offer and hoping that they will be able to raise rates later once those shippers “see their value” is going to be in for a rude awakening.

You won’t be able to raise rates.

Both FedEx and UPS know this.

Which is why they are both actively pursing enhanced revenue quality in order to create a new business balance.

This is no different than what we are seeing from Amazon and Walmart. While they are all going about it in different ways based on what they have to offer, they are all essentially looking for high revenue quality activity to help offset the impact of the lowering revenue quality of D2C and retail delivery.

FedEx for example is making 8% more per international priority shipment than last year. This is being supported by the Tricolor strategy, which focuses on profitable international air freight.

The company is also pouring a ton of effort into developing other areas of the business. Healthcare is a top priority for them right now given the more “premium” nature of this activity. They onboarded another $400M in annualized healthcare business, and expect healthcare revenue to reach ~$9B by the end of FY25.

They are also focused on improving their eCommerce cost base by tapping into more capacity without adding more trucks. They’re doing this by opening back up Sunday residential coverage to nearly two-thirds of U.S. population.

This is a great strategy for them. Frankly it’s something that benefits any asset based business (so long as you don’t have disproportionate operating costs for working the weekend or specifically on Sundays).

I myself have implemented this as a way to better load level activity throughout a week or simply create more sellable capacity without the need to add more vehicles.

And while this will benefit an asset based service provider more, even modern gig networks would benefit from expanding across the week before they expanding to more drivers.

Even if you avoid specific costs of the vehicles because your service is ‘asset light’, there is always some mechanical capacity in your system. There are only so many dock doors, so many routes, so much sortation, etc. that can happen every hour. By expanding across the week you can effectively add more throughput into your facilities and routes which should then lower your operating costs.

Strategically speaking, I expect both FedEx and UPS to continue to be aggressive in the market and only get more aggressive as we move through the summer of 2025.

For the size of their organizations, they need to maintain certain levels of activity. They are not interested in losing the profitability of their higher revenue quality business efforts, so they will keep gobbling up D2C eCommerce activity to stabilize the network.

Once the networks start to top out on capacity, they will then go back and start pruning the lowest value customers to make more room for premium activity.

This means that the customer volume that’s in the market, that will be available for regional or alternative carriers, will be some of the lowest revenue quality around.

And while R&As might be in a better position to take on this volume, it will still end up being a limiting factor when it comes to the overall profitability of their networks, and their ability to continue to grow and scale.

Even With A New Boss, Nike Is Still Struggling

So far, Elliot Hill’s appointment to Nike’s CEO isn’t showing signs of a turnaround.

The company's fiscal 2025 third-quarter results, show significant declines across key metrics.

Hill’s turn around plan includes a “Win Now” component that is built around enhancing Nike's presence in key cities and returning to a sport-first approach.

But based on the results of Nike Direct (Nike's direct-to-consumer business model) it doesn’t seem as though the company is penetrating well with its consumer base. Nike Direct revenues fell 12% to $4.7 billion.

On top of this, they are struggling in the (re-focused) wholesale activity and are getting slammed in key international markets like China.

Adding more pain to the fire are looming Supply Chain issues. The company faces external challenges including geopolitical issues, new tariffs, and fluctuating currency rates. They are also facing escalating international criticism and worker-led campaigns over unresolved labor violations and wage theft in its global supply chain (particularly in South and Southeast Asia).

What we are starting to see is a mega-brand that is slowly starting to lose relevance with consumers.

They are able to drive transactional and basic sales, but they are losing more of that premium and “hype” experience every day (outside of a few key products / lines).

Does this mean that Nike will be out of business tomorrow?

Absolutely not.

But there is still a lesson to be had for smaller and emerging brands.

Never lose sight of the work you need to do in order to connect with your consumers.

Social commerce and connected content is changing how people perceive brands and how they shop.

It’s changing what they are looking for and also, deciding to avoid certain brands based on who else is aligning to them.

In order to stop the bleeding, Nike is taking on a number of physical operations to lower costs.

• Inventory Actions:

  • Accelerated cleanup of classic styles (AF1, Dunk, AJ1)

  • Transition of excess product to factory/value channels

  • Target: reduce classic franchises by 10 pts of total footwear mix by Q4

• Digital Reset:

  • Reduced markdowns and promotions

  • Redirected liquidation from digital to outlet channels

  • Expect digital traffic to decline double digits in FY26 as model repositions

• Wholesale Revamp:

  • New leadership installed in sales (Erica Bullard) and Direct (Shannon Glass)

  • Cross-functional alignment and elevated partner experience emphasized

  • Commercial terms reverting to historical norms

While cost cutting will give them some breathing room with their cash, it won’t fix the relevancy problems.

For all of the other retail brands out there, the key is to be able to connect directly with your base.

To show them over and over again that they are heard and valued.

Find ways to introduce and orient your product to their values and current economic conditions.

That’s it for this week. Thanks for being here.