How can fashion brands limit the burden of a big stock backlog?
Fashion supply chains can’t catch a break. After global disruption during the early pandemic, Shanghai locked down for two months in April 2022. The impact of closing the world’s largest seaport is still felt more than a year later.
Even industry leaders have struggled to shift their clothing backlog. In March, Nike admitted its inventory value was 16% higher than the previous year. ASOS wrote off over £100 million in out-of-fashion stock at the end of 2022. And Under Armour’s inventory reached over $1.2 billion in the first quarter of 2023.
Excess stock has become one of fashion’s biggest burdens. So, how can brands tackle the overhang and keep inventory moving through their business? Let’s take a deeper dive.
The lingering impact of Shanghai’s lockdown on fashion retail
While logistics issues affect all retailers, the fashion industry gets particularly hard hit. And that’s because of its seasonality. By the time Shanghai cleared its shipping backlog last year, brands were receiving stock that was several months out of date.
To make matters worse, inflation had reached a 40-year high when the delayed stock arrived. That made it much tougher to sell clothing. Around two-thirds of adults have reined in spending to cope with the rising cost of living. Fashion purchases are often among the first items cut from people’s budgets.
Selling excess stock has felt like pushing a stone uphill for many fashion brands. Yet some have done a quicker job of clearing the overhang than others. And it’s all down to how they visualise inventory and manage orders.
Give customers the ability to buy stock regardless of its location
Selling extra inventory means making it available to buy in as many places as possible. Customers need to see everything on offer – whether they’re shopping through an e-commerce site, marketplace, app or in-store.
It sounds obvious, but the reality is that many fashion brands still manage inventory in siloes. As a result, consumers might think an item is out of stock in their size in the store when there are multiple items in the warehouse and vice versa. It’s a classic case of “water, water everywhere but not a drop to drink.”
To move inventory quickly, fashion brands must work from a unified stock pool. This way, customers can see everything available, irrespective of its location.
Brands can then use this single stock pool to underpin their order management strategy, exploring ways to drive cross-channel sales. For example:
- Introducing ship-from-store capabilities to dispatch excess store stock to online customers
- Giving store staff access to inventory data so they can look up warehouse stock levels if something isn’t available at the shelf edge
- Highlighting when items are on sale locally to drive online traffic into stores
Enabling customers to buy clothing in as many places as possible doesn’t just help to shift excess inventory. It creates a first-class shopping experience that keeps people loyal to a brand. And that’s even more important when revenue has taken a hit due to stock delays.
Maximise margins on marked-down items
Of course, availability isn’t the only challenge for tackling a stock backlog. Profitability is another key piece of the puzzle.
The biggest issue with the Shanghai port closure was timing. When stock arrived, it was out of season.
Realistically, the only way to get a UK consumer to buy a bikini in November or a Spanish shopper to choose a sweater in July is to discount that item. Many fashion retailers launched their summer sales early last season to get things moving. But price cuts eat into profits.
While marked-down stock will never be as profitable as full-price items, there are still ways to maximise margins. For example, fashion brands can:
- Identify the most profitable fulfilment locations. We’ve already mentioned making inventory available in all sales channels. However, some fulfilment points will be more cost-effective than others. The savviest fashion brands use distributed order management software to set rules for stock fulfilment, so items are dispatched from the most profitable location.
- Avoid split shipments. No retailer wants to pay two carrier fees, especially on discounted items. Any profit being made on an order is quickly wiped out by the delivery costs.
- Choose the cheapest carrier. Although this is a balancing act, as delivery times can impact return rates. 74% of consumers admit to getting “buyer’s remorse”, and the longer people contemplate their purchase, the higher their chance of returning it. There’s a trade-off between cost and speed. Regularly updating customers on their orders’ status can also help keep them engaged and avoid costly missed deliveries.
- Get consumers into the store. Not only is click-and-collect a cost-effective fulfilment method, but it can also offset the impact of markdowns. Online shoppers spend 23% more when choosing pick-up services, and 85% will make unplanned purchases when collecting orders.
Turn returns into a competitive advantage
In an ideal world, fashion brands would ensure excess stock is visible in all channels. That stock would sell quickly at a discounted price, and all customers would keep their items. But that’s never going to be the case.
As we mentioned above, returns are a major profit drain on the fashion industry, and they’re especially detrimental to marked-down items. The challenge retailers face is limiting the financial impact of this “necessary evil.”
The bottom line with returns is the speed of processing. The quicker an unwanted item is back in the available stock pool and can be re-sold, the less draining it will be. However, as we discussed earlier, many fashion brands still take a siloed approach to inventory – and returns are unlikely to come back into the business at the same point they left.
Intelligent order management is the key to making returns work harder. Not only can OMS software ensure returned items are available to buy as soon as they’re processed; it can help fashion brands make strategic decisions about where to hold those goods.
For example, an item sold in-store may be returned after a new collection has launched. Rather than take up valuable real estate, it makes sense to move marked-down returns to an outlet store. Equally, items sold through the main e-commerce site may fare better through marketplaces the second time around.
Take stock management seriously BEFORE something goes to seed
While the worst days of Covid are behind us (we hope), there will be future challenges that disrupt retail logistics. While we can’t prepare for all of these, savvy stock management can mitigate the impact of excess inventory.
Last year’s port closure prompted many fashion brands to prioritise order management, investing in tools like OneStock OMS. But we shouldn’t wait for something to go to seed before taking it seriously.
Companies can introduce best practices today that drive sales in all situations. Maximising availability, minimising markdowns and accelerating returns isn’t just a mantra for times of crisis. It’s a blueprint for profitable fashion retail.
OneStock is a leader in distributed order management software. We empower retailers to unlock your full omnichannel potential and future-proof your business.