Tackling unsold inventory for good

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.