Inventory is the biggest expense in an apparel retail business

Inventory is the biggest expense in an apparel retail business

Keeping track of inventory can make or break a fashion brand, and experts say there are several solutions to achieving this in an effective manner. 

"For apparel retailers, inventory is the biggest expense in their business. Given that, retailers need to plan and record every detail of what they sell, then plan their inventory to align with that," explains Dan Jablons, a retail consultant at the California, US-based Retail Smart Guys consultancy.

He suggests the key to a successful apparel business involves developing a plan to identify and get rid of old inventory, and subsequently, constantly seeking out new apparel lines and vendors.

"When a retailer is selling old inventory on the floor, it can affect the rest of their merchandise. Customers get bored quickly and they are always on the lookout for new clothes. If a customer walks into a store this month and sees what they saw the last time they came into the store a few weeks ago, for example, they're not going to come next month. Clothing retailers need to keep inventory changing and interesting," explains Jablons.

To reduce old inventory, markdowns and sales are the most common method. But Nicole Giordano, founder of StartUp Fashion, a US-based online community that helps small businesses and designers, says getting creative and using events such as trunk shows and in-home shows, and even websites such as garmentory.com, (which acts as a third party and sells products from a variety of boutiques and designers), can also be helpful.

Nick Banich, business development manager of operations for Miebach Consulting in the US, also suggests that for brands with an online presence, another way of unloading old inventory involves highlighting free pickup at store locations – instead of free shipping. This can drive customers into the store, which opens up the possibility for further sales.

Inventory issues

Banich stresses that inventory is integral to so much of a brand's overall strategy that if it is causing problems then managers should look hard at why – there could a strategic reason that needs tackling.

"Oftentimes, when people say they have an inventory issue, they're either having too much excess inventory or they've run out, or they are sending too much to secondary channels. But inventory issues can be a symptom of a bigger and deeper root cause," he explains.

"Brands need to ask themselves why they are having an inventory issue. When they ask themselves that, they usually realise there's a bigger problem where something like their supply chain design, planning process, forecasting, or manner of execution isn't aligned with the needs of the business."

Ideally, if a brand plans inventory correctly, there will be no excess. "'Retail is detail'," Jablons quotes, explaining that setting up a good apparel business is the sum of doing many things right. He says using a 'point of sale' (POS) system that keeps track of inventory is the best way of doing this.

A POS system generally refers to a system that deals with customer sales, returns, exchanges, etc, but there are integrated software options available that also monitor and update inventory whenever a product is sold. Jablons suggests several common programmes, including Retail Pro, QuickBooks Point of Sale, Springboard Retail, and Lightspeed Retail.

Planning and forecasting

But a POS system alone is not enough. Brands also need to implement an 'open-to-buy' (OTB) plan, which is a tool designed to help retailers manage and replenish their inventory investment. OTB solutions forecast sales by classification (blouses vs jackets vs skirts etc) and location, which allows brands to plan their inventory "without underbuying and missing sales, or overbuying and tying up cash unnecessarily", he explains.

"Proper open to buy planning and proper forecasting is everything, to put it bluntly – they are critical to the financial success of any retailer. If brands do that well, they will have strong sales, a great season and sell through everything well. If they miss the mark planning or forecasting, then they miss sales and opportunities," Jablons adds.

And while social media has been touted as a great tool for forecasting, Jablons disagrees. The way apparel brands need to buy involves buying several months in advance, so what they learn from social media forecasting is typically too late to affect anything they do. He adds that good feedback on social media is also difficult to turn into a plan for selling products.

"How do you take likes and nice comments people post on a page, for example, and convert that to a buying plan? I don't think that works very well. Forecasting comes from a variety of things – where the individual retailers' business is trending, where the general market is trending, where the economy is headed – not just what people are saying online," Jablons believes.

Click on the following links to read other articles on supply chain finance:

Debtor finance products a growing niche in fashion

Why traditional financing is a misfit for fast fashion

Software for financial planning and operations