Tackling unsold inventory for good

From customer data analytics to rethinking over-production, retailers are coming up with innovative solutions to one of the biggest pain points for the industry.

Unsold inventory has been declared one of the biggest problems for fashion retailers this year, with mounting levels of excess stock and the question of what to do about it prompting calls for an industrywide reset.

Commentators are unanimous that legacy avenues, from discounting to the more controversial disposal and the highly criticised practice of destruction, are not fit for purpose, proposing a more widespread adoption of data and technology, as well as a stronger connection to supply chains.

“The number of online arrivals in the UK is 16 per cent lower than last year. This indicates the urgency to pump the breaks on flooding inventories while retailers still work to move unsold clothes stock, on top of protecting margins,” says Kayla Marci, market analyst at retail intelligence company EDITED.

“Traditionally, aggressive discounting is deployed to help shift unsold clothes stock. However, even pre-COVID, it was a tactic that was failing to engage consumers as it used to. Retailers managed to dilute the excitement surrounding sale periods with constant product drops, resulting in greater markdowns, removing the urgency for consumers to buy full price.

“The pandemic has encouraged a reset to the traditional trade calendar to help break fashion’s addiction to discounting. This should result in collections dropping closer to the season to realign with the current customer’s ‘buy-now, wear-now preference’ and maximise selling times, resulting in lower inventory levels.”

Innovation on the high street

Marci commends brands, including Christopher Raeburn, Marques Almeida, Frankie Collective and Christy Dawn, for exploring new business models, such as upcycling deadstock (unused materials from previous collections), and Marks & Spencer for “hibernating” stock for later release.

Yet perhaps one of the most innovative is Inditex, owner of high street brand Zara. In its 2020 half-year results, it posted a 19 per cent drop in unsold inventory against an online sales growth of 74 per cent. Known for its small, but frequent, approach to new releases, it also credits this performance to its €10-billion investment in digital and sustainable transformation over the past seven years, fuelled by a further €2.7 billion over the next three years.

This will enable the development of its proprietary Inditex Open Platform, which uses machine learning to determine optimal stock levels. Combined with its RFID (radio-frequency identification) clothing tagging and integrated stock management systems, their digital transformation is driving towards a broader target of optimising business operations.

“This is a cornerstone of our unique business model, with three key pillars of flexibility, digital integration and sustainability,” says Inditex group executive chairman Pablo Isla.

A new fashion brand leading the way

Such digital integration is core to the business model of high-end fashion brand Another Tomorrow, launched in January 2020 by Vanessa Barboni Hallik, a former managing director at Morgan Stanley, who left finance to redefine how luxury brands approach business.
Materials such as wool and cotton are sourced directly from farms, with consumer data informing what Another Tomorrow should design with those materials.

“There aren’t that many brands buying raw wool from the farm, but it’s instructive in that it makes sure you have enough to produce what there’s ultimately demand for. This creates a lot of flexibility in what you bring to market. The final product is based on data,” says Barboni Hallik.

“We’ve started to release products based on when we think the customer will need them, continuously putting things out throughout the year. And because we maintain about 80 per cent of our collection as ‘core’, there’s always something there for the customer.”
This season-agnostic approach, which is becoming more widely adopted, means unsold clothes stock isn’t an issue for Another Tomorrow, as unused raw materials can be tapped into at any time.

“If we had just put out a whole autumn collection, because that’s what we’re supposed to do, then we wouldn’t be sitting here with a bunch of wool that we can use for various things that can stay connected to the customer’s needs,” Barboni Hallik explains.

“We’d be sitting here with a backlog of tailored overcoats and suiting that will probably sit around for the next six months. So it’s building in flexibility and optionality for your business by being as responsive to data, and the customer’s needs, as possible.”

The creation and use of data at a product level, coupled with digitalisation of apparel, Barboni Hallik believes, “is going to be increasingly important in solving this problem”.

Using the cloud to eradicate excess inventory

It’s an argument echoed by Flora Davidson, co-founder and chief commercial officer of fashion brand development platform SupplyCompass, who advises retailers need to be investing more in “understanding their own consumers”.

The coronavirus pandemic has forced fashion retailers to move from, “how do we get rid of unsold inventory?” to “how do we stop producing so much?”, says Davidson. More brands that otherwise may never have changed their way of working are now open to experimenting in what she hopes is a much-needed “tech leap” about to hit the industry.

“Unsold inventory is a huge issue that has been around for decades, but this is on another scale,” says Davidson. “Our approach to it is helping through technology. Our agile, on-demand digital supply chain network is helping more retailers produce much closer to the season and be more reactive to the consumer. We can reduce lead times by up to 75 per cent.

“The challenge for a lot of big retailers is they are designing collections that are often not sold until nine months down the line. That’s just too risky because no one knows what the current climate is going to be then. So a lot is down to reducing the time from idea to delivery. The only way we can do that with any significant improvement is by having cloud-based software at the heart of the process.”

Another Tomorrow’s Barboni Hallik warns: “This unsold inventory problem is going to have to stop, given the industry’s track record of dramatically overproducing relative to demand for the past two decades. People will just stop funding businesses that continue to have this problem.”

Yet Davidson at SupplyCompass is hopeful of “a shift towards designing smarter: more core styles, more seasonless pieces”. But will the industry get it right and learn to produce the right amount, as COVID-19 restrictions continue to influence shopping behaviour? “There’s a lot of work to be done in this space,” she concludes.

 

Source:www.raconteur.net – 15/10/2020
Written by
MaryLou Costa
Freelance writer and editor specialising in business, marketing, innovation, technology and startups, her work has been published in The Guardian, The Observer, Marketing Week and Campaign.