Rethinking inventory and seasonality

Post COVID-19 considerations for apparel and footwear brands

Retailers across apparel and footwear brands have been hit the hardest during the COVID-19 crisis. Most have significantly shut down physical operations and are grappling with the changes. The top priority of the retailers is to minimize losses and reduce risks. Since there is no established path to navigate the current situation, retailers will have to consider multiple strategies and rethink their operating models.

At the outset, brands have focused on critical activities that preserve cash. This includes furloughing employees, deferring rents and slowing or shutting down of supply chains for non-essential initiatives.

Now is also the time to address inventory and seasonality.

This can be achieved by enabling a strategy to critically deal with current inventories, reduce markdown and liquidity risk due to external events by re-thinking and transforming seasonality.

 

Critical solutions for current inventories

It is tempting for retailers to go the ‘promotional and clearance’ route to liquidate seasonal products, however, this may prove counterproductive to the long-term growth margin.

 For seasonal products, alternate strategies could include holding inventory to merchandise next year, moving inventory to alternate geographies and considering charitable donations.

To determine the best path forward retailers will need to build comprehensive financial models to optimize risk, margin and working capital. Key internal and external factors need to be taken into consideration such as inventory holding cost, price sensitivity, margin scenarios, and reverse logistics.

Executing these strategies will involve enabling or expanding capabilities such as reverse logistics to move large inventory volumes of inventory across the supply chain cost. It could also involve scaling up an order on-line ship from store fulfillment.

While this may seem like an expensive strategy, it can be instrumental in building a lasting competitive advantage that minimizes markdowns and maintains a compelling value proposition.

 

Re-think and transform seasonality.

Brands and retailers have been trying to reduce seasonal markdown risk with minimal success.

The pandemic has simply exacerbated an existing problem in the industry and will become the catalyst for organizations to transform seasonal merchandising strategies.

The complexity lies in optimizing the benefits of injecting innovation with the markdown costs of liquidating existing inventories.  One such strategy is called ‘fifty-two seasons’. Its core objective is to drive a consistent flow of smaller quantities of a new product based on available shelf space.

Additionally, brands need to consider how to offer product choices that are less sensitive to seasonality. This enables flexibility and resiliency to create an optimal in-store experience that can adapt to external factors in a localized market. Operating models for merchandising, sales, sourcing, and supply chain will need to undertake significant transformation to make this a success.

While this comes at a cost, there are many benefits including optimizing inventory, assortments, and margins, stabilizing cash flow, and creating operational efficiencies across the supply chain.

Some key considerations include enabling a more sustainable/digital method to go to market more frequently, designing and merchandising assortments with flexibility in presentation and product, and sourcing a continuous product flow with agility for frequent changes.

We encourage brands and retailers to use this crisis as an opportunity to rethink and overcome these barriers to drive growth and profitability.