Retailers are not exactly experiencing the best conditions ever—particularly fashion retailers. Depleted revenue, compressed margins, and an overburdened fulfillment infrastructure that wasn’t prepared for spikes in online volume reaching 40-60% of total sales are just the tip of the iceberg. Some are seeing up to 8 percentage points of margin loss on a digital order.
Needless to say, the immediate future of fashion retailing may be a bumpy ride.
It was logical to assume sales figures would rebound as vaccinated shoppers grew more comfortable venturing back to the local mall. But that early optimism was quickly tempered by a slew of emerging factors—port shutdowns in China and other nagging supply chain woes, a global labor shortage, and rising inflation—capped off by rippling effects from the Ukraine conflict. The result is a paradox: clothing and clothing accessory sales are on a significant rebound—up 124% from the pandemic depths of March 2020 and 14% above March 2019 levels. Yet record levels of inflation may eventually temper customer buying, especially for discretionary items such as clothing.
In light of all these lingering uncertainties, retailers must be as nimble as ever in their forecasting, planning, and inventory management. Omnichannel is here to stay; that is certain. Even when life feels nearly back to the “old normal,” retailing challenges will continue to evolve. And therein lies the balancing act—successfully coordinating the digital front end with fulfillment from physical inventory. For example, 40% of retail winners have already indicated that “too many inventory transfers between selling locations” was a top inventory management challenge.
So Now What?
Retailers must anticipate and respond to customer demand and market shifts, even though it has become more complicated. It’s not surprising that fewer than 10% of retailers can do this today—but it does explain why 57% of retailers have listed improving demand forecasting a top focus area.
But that is only the start as retailers must reconfigure their assortments for their stores and channels. In an omnichannel environment, the brick-and-mortar store represents a showroom and experience center, along with a convenient sales, fulfillment, and return location. Stores in isolation do not maximize the brand, revenue, or margins. So, even though fringe sizes may have a 10-15% greater demand online, some of this inventory should be carried at stores for fulfillment, even if it isn’t on display.
That same type of diligence must be carried through other inventory management processes. Allocation and pricing teams must consider omnichannel demand when making inventory and pricing decisions. How much is going to be picked up from the store, shipped from store, or even returned to the store? The demand is there, whether you plan for it or not. If you don’t plan for it, the following situation can occur.