Overcoming Excess Inventory Challenges With a Digital Approach
Arthur Zaczkiewicz and Ronen Lazar
6 min read
COVID-19 has created a series of complex challenges for retail brands. From rapid demand volatility to erratic shifts in consumer purchasing behaviors, the ripple effects of the pandemic have blurred the lines for producing optimal inventory volumes to align with current demand. In the spring, mandatory store closings left brands with exceedingly high amounts of excess inventory — hurting their supply chains, bottom lines and sales potential.
The expected value of excess inventory from spring 2020 collections is estimated between $160 billion to $185 billion worldwide, more than doubling average levels. In response, major brands like Nike have closed some of their primary wholesale accounts in favor of d-t-c and also shifted focus to bolstering their e-commerce and omnichannel capabilities.
Other brands have turned to deep discounting, knocking prices down by as much as 70 percent in order to salvage at least a small percentage of their seasonal sales — a short-term solution that lacks long-term reliability. And with fast fashion now also deemed unsustainable, some luxury brands have upped their prices, while others have even packed away seasonal items to be redistributed next year.
But wait, why aren’t more brands leveraging off-price retail?
In a normal world, a world where brick-and-mortar retailers weren’t severely limited by the ripple effects of a global pandemic, off-price retail would be the most logical approach to selling excess inventory. However, as fashion’s major retailers are continuously filing for bankruptcy, the off-price sector has been flooded with large quantities of inventory from major brands looking to offload their inventory. And while there have been calamities in the past that shrunk off-price shelf space (such as the 2008 recession), selling into the market is currently more competitive than ever.
Some off-price retailers are still buying, but the saturated market has led to tight sales windows amongst companies looking to offload excess inventory. Between brands who have traditionally relied on their own outlet stores, brands who have always sold into off-price, new brands looking for ways to offload unprecedented volumes of inventory and off-price retailers having their own excess in storage, the competition for selling to the likes of T.J. Maxx and Marshalls is at an all-time high.
Fashion brands have an opportunity to enlist advanced technology in order to gain the means to proactively navigate the industry’s new normal of uncertainty. As they continue to jockey for coveted spots in off-price stores, the importance of weaving digital innovation into their inventory management, supply chain processes and forecasting has emerged to the forefront.
Digitally Optimizing Excess Inventory
For fashion brands, the use of advanced technology solutions can simplify excess inventory management processes and increase appeal in the eyes of off-price retail buyers; brands can no longer rely on previously established off-price relationships. Instead, they need to ensure their inventory is presented in a marketable manner that fully reflects the value of their products. This is where thinking outside the box with tech can help optimize and manage inventory levels.
For example, a dedicated software platform can be utilized as a system of record, compiling various forms of excess inventory data — product information, sizes, images and success rates — into one centralized virtual database that provides real-time visibility into the status of individual items. It streamlines internal workflows by organizing all the necessary inventory information into one place to foster quick, productive collaboration between teams. With the data-driven actionable insights, brands can expedite their selling process by showcasing the right products at the right times to off-price retail buyers.
Digitizing Supply Chains
If brands are going to remain competitive in the off-price market, they will need to ensure their supply chains are resilient and well-positioned to distribute large amounts of excess inventory on quick turnarounds. With immense excess inventory volume comes immense amounts of data to sort through. A focus on digitizing the supply chain for end-to-end visibility can empower brands to analyze and act on data insights both quickly and efficiently.
By leveraging supply chain digitization through advanced technology solutions, blockchain, RFID and machine learning, brands can increase their product availability to position themselves as major players in the off-price market while managing and maximizing the ROI of their supply chain. A digital supply chain further enables them to move excess inventory at reduced costs to ensure their logistics are equipped to effectively handle surplus volumes within tight distribution budgets and labor shortages.
Forecasting Volatile Demand With Advanced Data
Forecasting demand with 100 percent accuracy was impossible even before the COVID-19, but brands were able to get away with occasional mishaps because the industry was stable. But as we’re now nearly eight months into the pandemic, the margin for error is razor thin. In reality, brands cannot afford to repeatedly miss the mark with their supply chain production and distribution. The financial and environmental consequences of wasted excess inventory are too severe.
The current predicament magnifies the need for brands to rely on advanced data analysis. In the past, fashion lagged behind other industries as retailers and brands were slow to utilize data analytics as a tool. To remain competitive, this can no longer be the case. A brand can combat high market volatility with effective decision making by leveraging advanced analytics systems that provide actionable forecasting insights. As demand shifts by the week, brands need to be able to identify consumer spending patterns that reflect where the off-price sector is trending.
Advanced analytics can provide detailed reporting on-demand, as well as the localized seasonality of individual products, enabling brands to proactively strategize excess inventory allocation using actionable insights. By obtaining this information in simplified reports, brands can essentially pinpoint when and where current demands align with their excess inventory and prioritize selling those products to remain attractive in the off-price market.
Until COVID-19 subsides, brands will continue to face an uphill battle for profitability. The need for a proactive approach will extend far beyond the end of the pandemic. It has actually changed the way the industry will conduct business in the future. The distribution process will be streamlined to meet faster demand turnarounds and tighter labor budgets, while omnichannel e-commerce and flexible purchasing options will only continue to grow in popularity.
In response, the situation calls for brands to reassess their current digital capabilities to pinpoint areas of needed improvement — whether it be for enhanced inventory management, more accurate forecasting or a flexible supply chain. By taking a digital approach with the use of advanced technology, fashion brands of all sizes can position themselves to overcome complex excess inventory challenges and stay competitive in the off-price market.
Ronen Lazar is chief executive officer and cofounder of Inturn.
