Almost every business faces stock control and inventory management issues, especially in retail. Keeping stock in check is important in the growth of a brand in terms of maintaining or increasing profit margins and also ensuring overall consumer satisfaction.
While ‘out-of-stock’ might be an indication of a particular trend’s popularity, it’s crucial to find a balance between demand and supply. The ability to meet consumer demands is one of the biggest challenges for any fashion retailer. As new collections are introduced and old ones discontinued or replenished throughout the year, it’s common for database inaccuracies to occur, which in turn disrupts the entire supply chain.
But there’s hope. With the state of modern retailing in the face of technology today, retailers can utilise data intelligence to understand and determine if a style or trend has enough of a demand before pushing it to production, which then translates to how much to stock up on at any given time.
Right Products at the Right Time
In the fashion world where styles are fleeting and promotions can spike sales almost instantly, the supply chain has to react fast in order to deliver just the right amount at the right time. Charles & Keith, an international footwear brand based in Singapore, was able to find the right balance between their in-stock and out-of-stock collections.=
Upon closer analysis on their data, Charles & Keith showed a 62% (2,352 SKUs) in-stock rate from June – August 2018, which was almost double the amount of SKUs that were out-of-stock.
The above-average in-stock rate could stem from their knowledge of what to stock up on and replenish in their inventory based on the percentage of assortments selling out at full price. This is indicative of a healthy supply chain for Charles & Keith as their customers will not experience sudden out-of-stock instances leading to dissatisfaction, lost sales and customer loyalty. Taking it a step further, looking at the ratio of full priced vs discounted products sold will help to determine if they are indeed strategising their stock efficiently.
The chart above showed that 46% of Charles & Keith’s out-of-stock products were discounted from June – August 2018. This further reinstates the fact that most of the out-of-stock items were sold at full price, hence minimising the need to discount for low sellouts. Being able to strategise replenishments for best-selling items and retain lean inventory levels just means Charles & Keith was successful in having the right products at the right time.
What about the discount ranges? Were they on the lower or higher end of the spectrum?
The chart above shows that Charles & Keith’s discount rates fall mainly within the mid-range level. Most of their discounted items sold out at the 50-54% and 40-44% discount bands, which is comparable to industry standards due to the summer season timeline of June to August.
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Managing Stock Counts
Besides being able to produce and purchase the right stock at the right time, having data at your fingertips will allow for better stock management. An oversupply means more discounts needed and less profit gained, while under supplying will lead to missed sales opportunities.
Trends are a big part of fashion and ensuring the availability of sellable stock on hand is crucial. Fast fashion especially, is easily susceptible to rapid inventory turnover rates and an inability to adapt to consumer demands means losing out on the novelty of ideas that define the industry.
H&M, a fast fashion powerhouse, was in a dire situation with huge levels of unsold inventory levels in early 2018. $4.3 billion dollars worth of inventory, to be exact. So how did they end up with this much excess stock?
To answer this, we must look at their supply chain. By sourcing from Asia, H&M’s supply chain resulted in longer lead times, affecting their ability to react to changes and keep up with trends as quickly as their competitors. This issue contributed to a vicious cycle of leftover garments and heavy discounting.
After Q4 2017, H&M hoped to turn the situation around by implementing aggressive promotions meant to clear inventory and set a better structure in 2018. But in January 2018 the unseasonably warm weather in Europe and sudden cold climate in February left them with high levels of unsold Spring stock. CEO Karl-Johan Persson said the company made the mistake of narrowing its assortments last year due to the weak sales in Q4 2017. This has caused consumers to seek other fashion brands that have more trendy options aligned to current trends.
The graph below illustrates the consistent decrease of sellout rates across a timeline of January – June 2018, demonstrating that consumers were indeed losing interest in purchasing from H&M. The lowest sellout rate of 15.2% in June says it all.
Overall, having data will assist in identifying these stock discrepancies early on, thus minimising revenue loss from dead stock.
The Future of Retail
With measurable data, brands and retailers will be able to track stock movements throughout the season and make informed decisions. The fastest and most reliable way to monitor sellouts and reduce stocking inconsistencies is to utilise a retail market intelligence platform. Sellouts in this aspect would mean understanding consumers’ behaviours from colour preferences, best-selling price points and product assortments.
Buying lean is no easy feat and few retailers have it all figured out. Knowing the exact styles, colours and materials to stock up on that best meet one’s consumers’ needs may seem like an arduous task. Even if brands knew what they wanted, they wouldn’t be able to predict or control what their competitors are stocking up on. But one thing they definitely can do is effectively balance and control their own inventory to optimise selling opportunities while minimising over-stocking.
*All graphs and charts were derived from real-time data extracted from Omnilytics
Matthew Lovett is Director of Retail at Omnilytics, a market intelligence platform with a mission to provide real-time data analytics to help businesses make informed decisions with speed, precision and accuracy. Matthew is responsible for spearheading the growth of the Omnilytics brand by creating data partnerships around the world and driving automated retail strategies for all his enterprise Fashion and Beauty clients. He also speaks and educates businesses about using data-driven intelligence to make stocking and marketing decisions, optimise assortments and produce trend analyses to minimise cost and time to market.