The change in consumer buying behaviour is ideally one of the major reasons that have contributed to disruption caused in the apparel industry. Several lockdowns across the world due to the ongoing pandemic, along with the change in buying pattern, have resulted in piles of unsold inventory and adoption of online sales channels for buying a product. For managing the inventory, it is important to maximise the inventory ROI, and therefore, free the cash that is locked up in the form of inventory. The retailers also need to focus on how to optimise the buying inventory since there is no scope of holding any unsold inventory and markdown. Moreover, as there are multiple sales channels like brand websites and market places, delivering a unifying experience to customer has become a task.
We underline a few key challenges of the new normal, followed by suggesting what the retailers can do to keep their business afloat during the pandemic…
Maximising inventory ROI and optimising buying
The inventory accumulated from the unsold Spring/Summer 2020 stock needs to be managed to generate the cash flow. “We can’t afford any overstock situation that can lead to holding cost and also cannot take the risk of revenue loss due to out-of-stock and under-stock products. The apparel inventory has proven to reinvent itself and adjust to where, what and how consumers buy,” said Seema Agarwal, VP and Head Retail – Analytics of Manthan, a retail tech provider for the fashion industry.
For managing the inventory, the retailers should categorise the stock in assortment based on the size, colour and style levels. Then based on the demand of customers and trend analysis, the retailers should look up to which inventory holds value and customers will be willing to pay for, and which does not. Also, the inventory should be categorised into preserve bucket, which means how to preserve the core or basic products for upcoming seasons, and the inventory can also be packed for special purposes so as to slowly free up the old stock. Moreover, the styles that hold value for the season should be sold at full price to eliminate any markdowns on the potential products. Seema further emphasised on conducting an assessment and segmentation of stocks to analyse the potential, carry over styles which can be used for further assortment and reducing the development cost for new styles.
Moreover, in such a scenario, optimising the future buying of inventory for planned purchases is important; therefore, it is essential to understand the merchandise based on the market trends and purchase history of the customers. For accuracy in trend forecasting and understanding the consumer shift in the buying pattern, investing in technology would accelerate the recovery process with accurate analysis of data and better decision-making.
Delivering unifying customer experience and automation
As the customers today prefer online shopping and are also spending more time on the internet, online commerce has become a default choice for retailers to reach customers. Now the fight is to remain relevant, as the e-commerce competition has increased. Today, customers are also demanding convenience – shorter shipping costs, faster turnaround time, discounts and consistent price across all channels. For this, it is important for brands to have a platform to maintain a single view of product information across various sales channels. Any false product information may lead to customer dissatisfaction. While technology can definitely help here, there are also other ways for solving the problem. “Change in mindsets is the first step; this might take time, as things are not just going to happen overnight. You can buy the system, but adaption takes time,” said Amit Kulshrestha, Chief Product Officer, Vinculum Solutions Ltd.
Another approach is that since the customers are price-sensitive, they would not like to pay additional costs like shipping cost which makes ‘Buy Online, Pick-Up in Store’ (BOPIS) an ideal solution. “68 per cent of the US consumers have made multiple ‘click and collect’ purchases. The most popular reason shoppers give for using BOPIS was saving on shipping costs, with 48 per cent citing it. Besides that, saving speed (39 per cent) and convenience (28 per cent) were the two most cited reasons for using BOPIS,” said Amit.
Three A’s Approach: Solution to the issues
A three A’s approach of Algorithm, Automation and Agile can be used to eliminate the complexity associated with the process. With multiple sales channels, retailers have access to huge amount of data; however, not much is put into use for making a decision. The intelligent analysing of historical data, current e-commerce demand pattern, and the right trend to set the right plan for the current and upcoming seasons cannot be done without an algorithmic approach. A lot of retailers still use Excel for analysing the data without realising how much time-consuming and complex the process is. Switching to the Algorithmic approach reduces complexities, increases speed and accuracy of prediction. The analysis should also be done to understand the demand of each of the sales channels so as to set an assortment plan accordingly. “We need scientific approach and data science to predict the exact quantity and also understand where to locate as hyper localisation is the key. Retailers need to locate as per the localised merchandise demand,” highlighted Seema.
Through Automation, retailers can reduce the time and also the operation cost of the task that is otherwise done manually. It also allows working with less merchants and planners so that the hiring cost can be saved.
So far as Agile is concerned, it’s not good enough to plan precisely, but is equally important to track them continuously. “Gone are the days when we used to do seasonal planning; now we will have to do continuous planning, and for this, we need to have a continuous visibility and insights where we can actually see the exceptions in business and have recommendations on the course corrections,” explained Seema.
Manthan offers a Merchandise Analytics solution that leverages the use of AI to automate the merchandising decisions in buying, inventory planning, pricing and promotion. The solution helps in a customer-centric assortment planning, which personalises the assortment based on channels preferred by the customers of each sales channel. It helps in assortment planning both for pre-season and in-season. Allocation, new production introduction, helps in optimising key assortment metrics like sales growth, gross margin and inventory turns. The data analytics capabilities of the solution help in demand forecasting, trends and sentiment analysis, and also plan a profitable localised merchandise mix. The system works in real time to suggest the retailers about products to be dropped, retained, replaced or substituted. It further suggests products for markdown with the ideal markdown rates, percentage and expected sales uplift. It also recommends appropriate price points for products that are slow movers based on external factors and internal data.
The solution further helps in maintaining appropriate amount of inventory on all its channels by providing real-time information to potential out-of-stock situations and indicating of the new purchase or intra store transfer of stocks replenishment. Any decisions, updates and changes in the system are reflected across all channels so that the information consistency is maintained. The implementation of the solution will not only help the retailers in planning and optimising inventory, but will also create a unified experience across all sales channels. It further assists in deciding an optimal pricing for each product across all channels. The high-tech solution performs analysis to deliver the optimal decision, while the AI and data management capabilities help in the better analysing of the data to deliver an accurate result.
Installing and the correct use of technologies can act as a fuel to speed up the recover process. Also, as customers are less prioritising the fashion shopping, it’s important to understand what the demand in the market is. Technology should also be utilised for providing a personalised experience to them when shopping from a brand website. “Investing in technology is easy; however, adapting to the technology is not possible without changing the mindset, which is only possible with a vision or a situation like COVID-19,” concluded Amit.