As stock issues hit retailers’ bottom lines, Drapers examines the new stock challenges facing fashion.
Getting the right stock, in the right place, at the right time is fundamental in fashion. A survey by consultancy Aptos last year found that half (52%) of UK shoppers would abandon their favourite retailer and head elsewhere if a store failed to stock the exact item they wanted.
“Effective stock management is key to the success of any retail chain,” says Neil Kirkby, head of sales at shoe retailer Cheaney. “Too much, and it weighs you down – too little, and potential sales are lost.”
But perfecting this balance clearly remains a challenge, even for some of the most familiar high street operators. In January alone Joules, Marks & Spencer and Superdry all cited issues around availability as contributing to disappointing festive sales, while that same month an independent review of Ted Baker’s inventory estimated it had been overstated by £58m, more than twice the original estimate of £25m.
Collectively their experience stands at 170 years. So, why is this area of retail so hard to get right?
In each of these high-profile examples the circumstances were slightly different. At British lifestyle brand Joules, for example, issues stemmed from poor stock availability online following a miscalculation of what was available at its central distribution centre.
Marks & Spencer weighted inventory too heavily on slim and skinny cuts in men’s trousers, and Superdry suffered shortages of some of its bestselling lines. Ted Baker is yet to provide further details on the cause of the error in its own inventory valuation.
Each of these retailers had challenges specific to their business, but there are plenty of shared issues when it comes to stock management, many of which are becoming more problematic for the industry.
Top of the list is changes to consumer behaviour and demand, suggests Kirkby: “The single biggest challenge is the need for diversity in our current retail environment. With the onset of Instagram culture, everyone is their own brand, endeavouring to create a unique appearance for others to follow and engage with. This is the enemy of an efficient manufacturing division, as fewer ranges with greater depth is the ideal from a production point of view.”
As well as this greater diversity of product, consumers want diversity of channels, and the ability to switch seamlessly between online and offline. That creates increasing complexity in stock allocation, as demonstrated by the incident at Joules, in which miscalculations created shortages in ecommerce but not bricks-and-mortar stores.
Returns are a double-edged sword. They make online shopping much easier for customers, but present a huge logistical issue
Georgia Wickes, Newton
This complexity can have “a negative impact”, says Georgia Wickes, director at retail consultancy Newton. “Having separate stock pots for stores, online, concessions and affiliates sounds like a good idea to protect stock, but often leads to lost sales in one and excess stock in another.”
The spike in returns that has stemmed from ecommerce adds another “pot” to contend with.
“Returns are a double-edged sword,” Wickes adds. “They make online shopping much easier for customers, but present a huge logistical issue.”
In addition to these sweeping changes in shopping behaviour and expectation – and the complexities they create in supply chains – is the need for UK retailers to navigate this complexity amid ongoing economic uncertainties.
“Brexit has played a major part,” says Alice Barat, chief commercial officer at womenswear wholesaler B Girl Fashion. “With the majority of goods coming from abroad, the drop in the value of sterling has increased costs significantly,” as well as reducing the number of competitive options for sourcing.
This has impacted efficiencies for the London-based business: “We are not able to offer as much choice to our customers and they too are looking at options elsewhere, which in turn has an impact on our revenues.”
An economic environment in flux can also lead to open-to-buy (OTB) budgets being suddenly cut, leaving retailers with less flexibility to respond when, for example, a product begins trending, says Kelly Miely, fashion and luxury partner at Deloitte: “While many retailers are looking to increase the breadth of assortment and newness within smaller OTB budgets, they are being constrained by supplier minimums and lead times. The impact of this on inventory is that there can be too much depth across too few product options.”
The solution to navigating this two-pronged complexity of changing consumer behaviour and a difficult retail climate is introducing a simpler, shorter supply chain wherever possible, and having the infrastructure in place to know what you have and what you need, experts agree.
Analytics and data – in particular around sizing and allocations – remain under-utilised
Kelly Miely, Deloitte
To start with, aim to simplify supply chains, suggests Miely: “Near-shore and local sourcing, which can enable retailers to react quickly to shifts in demand, are under-used. This has been cost-prohibitive in the past, but technology advances are making on-demand production more feasible.”
Barat says B Girl Fashion, which sources from Italy, Paris and China, is “looking at ways of hedging currency exposure, and also sourcing directly from manufacturers [in Europe]” to shorten its supply chain and improve efficiencies. It follows issues with inbound inventory as a result of Brexit, a weakened pound and the more recent impact of the coronavirus.
Ensure the supply chain is supported by data-led infrastructure adds Miely: “Analytics and data – in particular around sizing and allocations – remain under-utilised. Some retailers are still over-allocating and do not have flexible enough inventory left to meet demand.”
“Using data analysis means a retailer doesn’t need to look at specific samples and firefight on the back of anecdotal evidence of an out-of-stock from a customer, for instance,” says Wickes. “We frequently see blame all placed on the last touchpoint – often supply chain – without understanding how decisions over time impacted the end result.”
A data-led approach let bag and accessory brand Maxwell-Scott achieve “perfect” stock levels over the 2019 Christmas period, says its CEO and founder William Forshaw, despite sales being 70% ahead of what they were in 2018: “We try to estimate the stock needed by checking the sales data from previous years and taking into consideration any growth that our core markets have experienced. This process is also communicated to the marketing team to make sure that any promotions align with stock levels.”
This cross-departmental approach is crucial, adds Wickes: “Effective use of data relies on a business not working in departmental silos. This can be prevented by simply giving all business teams central access to all data sets.”
With a robust system in place to analyse what is in stock, many retailers are adding artificial intelligence technology to assist with predicting optimum stock levels, says Dan Ackers, retail cloud expert at Cloud Technology Solutions. By analysing data in real time, AI tools can factor in festive spikes, trending products and even the weather.
“For bricks-and-mortar retailers, the technology has proven to be particularly useful regionally to make sure the right stock is available ahead of certain events or good and bad weather forecasts,” says Ackers. “It has helped brands align their ordering processes and optimise shelf space.”
No doubt each of the four retailers that revealed troubles in January will be considering what solutions will prevent a repeat issue. Marks & Spencer, for instance, tells Drapers it has already reshaped its buy to ensure a more even spread in fits and styles, while Joules has introduced additional checks and controls in merchandising.
Superdry did not respond to Drapers’ requests for comment, but has previously said its “disciplined plan to reinvigorate the brand and return Superdry to sustainable long-term growth is on track”.
Proper stock management is a fundamental element of fashion retail, and one that is becoming increasingly complex as a result of the shift of spend online, higher shopper expectations and dealing with wider economic uncertainties. However, good data and simple processes can help to keep retailers on the right track.