Fashion brands need to act on Inventory Overhang or they will go out of style

The past couple of years have been a rollercoaster for fashion brands. The supply chain disruptions of 2021 have left many traders scrambling to get enough on hand and then overbuying to compensate. But now, with the economic downturn and the threat of cost-cutting, many companies are stockpiling mountains of supplies they can’t replace in the wake of the pandemic.

In fact, according to a recent survey by Inventory Planner, 44% of fashion retailers have excess items they are desperate to unload, accounting for 20% of their total inventory. The poll also found that one in four fashion stores globally wrote off excess stock as a loss last year, charging higher costs to the business.

The dangers of sitting on furniture for long periods of time are obvious. Target has seen its shares fall after taking a price cut to clear unsold inventory. And British brands and Joules both recently went into administration after massive mis-timed acquisitions.

Abundant inventory is a particular challenge for fashion retailers because products tend to depreciate after a short period of time and seasonally influenced items may quickly go out of fashion or become overstocked. Excess stock means businesses have less room in their warehouses for new stock, and less money to buy new goods and jump on new trends.

How do brands deal with accounting issues?

As demand waned, American and British department store chains stockpiled so much inventory that brands began offering major discounts, especially on clothing. However, these methods hurt the bottom line, with more than half of retailers admitting that it would be difficult to write off markdowns, markdowns or excess stock.

According to Taylor Shupp, who co-founded sock brand Stance and now runs apparel company Fuststitch, companies are starting to look at different measures of success: “Gross margin used to be the most important metric, but recently, it feels like inventory is the most important metric.” ” said Shupe.

Contribution margin, or a measure of the profitability of products held in each inventory, is becoming critical, Shupp said. As the economic crisis worsens, cutting inventory is a critical strategic move for all brands.

But not all brands are simply reducing order sizes. While sunk costs mean less inventory is better, brands with conflicting supply chains and delayed shipments are looking for other solutions to maximize cash flow.

Danielle Malkonian, CEO of plus-size clothing brand Vicky V, says the fear of overbuying was a key factor in revamping the business’s own inventory plan three years ago. “To scale online, you have to sell the same thing to a lot of people and go deeper into your inventory level,” Malkonian says. This is dangerous,” he said. “As a retailer it’s scary to overbuy – you can go out of business these days. Cash flow is everything. If dollars are tied up in inventory that you can’t sell, you’re either going to get out and make more money somehow, or you’re going to have to discount to survive.

Malkonian is incorporating the idea of ​​keeping top-selling products and focusing on low-selling items within the group, essentially following the 80/20 rule, where 80% of your sales come from 20% of your products.

The Malkonia team uses inventory planning technology to easily identify their best sellers and receive detailed inventory insights so they can accurately fill plus size clothing down to color, style, size and other variations. It has a high sales potential, which reduces the risk.

In a bull market, expanding into new categories and expanding the scope of your territory are good ideas to take advantage of high demand. But a recession calls for a different strategy.

All traders – especially those in apparel – need to do what works and contribute to profits and take a holistic approach to analyzing data on a daily and weekly basis. When we talk to retailers, we tell them to get serious about cleaning up what isn’t working and making sure every dollar in inventory is working.

The risk of sitting on too many items is very real. Apparel retailers can quickly look at their workspace and look for solutions that don’t need them, so they can easily identify what needs to be cleaned to free up money. Make no mistake, cash is king, and now it’s more critical to a retailer’s survival than ever.

Mark Hook has 12 years of experience leading global PR, branding and communications strategy for major brands. His background is diverse, having worked in senior agency and in-house positions across sectors including B2B, technology, consumer and health. An expert in using storytelling to build a brand, Hook has built a stellar reputation as one of the top storytellers in SaaS and eCommerce. He currently serves as VP of Global Brand, PR and Comms Inventory Planner by Sage.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *