This entry was written as a Guest post. The author’s views below are entirely his or her own and may not reflect the views of ILFR.
When it comes to running a fashion retail business, one thing is certain: there will always be excess merchandise to deal with at the end of the season. And you may need to deal with slow sellers during the season as well.
Unlike other industries, like books for example, there are several reasons why fashion will always produce overstock. First, production lead times. You need to predict what your customer will want to buy six months in the future. Without a crystal ball, you’re bound to get it wrong from time to time. Second, fashion is designed and delivered seasonally, making most product outdated after 3-4 months of full-price selling. In this sense, like milk, fashion has an expiration date.
Then there’s the weather. Unless you’re doing business exclusively in a region that gets very little fluctuation in weather, seasonal climate changes can have a major effect on how much inventory you’re left with at the end of a season. Maybe you sold a ton of outerwear last year and plan on doing so again this year. Then, mother nature delivers an unseasonably warm winter and you’re left with an excess of puffer coats and ski jackets.
Finally, fashion stands apart from other industries because of sizing. Not only do you need to stock the styles that your customers want to buy, you also have to have it in their size. Good data can tell you what sizes you’re most likely to sell, but planning isn’t foolproof and you’ll always be left with odd sizes at the end of the season.
You can try your best to minimize excess inventory, but it’s an inevitable element of fashion retail. And dealing with your overstock inventory is as vital as paying the electricity bill or writing payroll checks. It’s important that you emotionally detach from your slow sellers and accept that you will lose money on some of the product you’ve bought. Having large amounts of cash tied up in dead stock stops you from buying more of the product that’s selling well. Carrying too much unproductive inventory can also negatively affect your brand image.
So, how do you deal with excess inventory when running a fashion ecommerce site? Firstly, it’s important to constantly monitor your inventory and its aging. Aging is how long you’ve had your product selling at full-price. The longer you’ve had a style, the greater the likelihood that it’s becoming a liability and will need to be dealt with. I suggest analyzing your inventory aging monthly, at a minimum, and taking action to deal with problem product before it gets out of hand. Having identified the problem product, here are 8 ways to deal with the excess inventory.
I’ve worked with many fashion retailers who think ‘sale’ is a curse word. In all reality, markdowns are an essential tool for running a successful fashion business, and your first option in dealing with excess inventory. Some retailers choose to stretch their sale period over a longer window of time, offering ever increasing discounts. Others choose to go on sale for only two weeks at the end of a season and offer more substantial discounts from the start. Consider what markdown cadence will work best for your business while also taking into account how your markdown cadence will impact your brand image.
A less obvious form of markdown, bundling is a great way to use better performing merchandise to drive sales on underperforming styles. Offering incentives like combination pricing when customers buy two of something can be marketed as a ‘special’ offer rather than a markdown. And offers that combine products that customers want with products that are stagnant can help drive slow sellers faster than a straight discount.
3) Themed Sale Events
If you need to put merchandise on sale during the season, consider running a themed sale event. This might be centered around an upcoming holiday or around a particularly slow category of products. A weekend sale on footwear, for example, will draw in customers particularly interested in that category giving your excess inventory exposure to targeted customers with high interest.
4) Return To Vendor
If you sell branded designer merchandise on your site, many luxury brands will be willing to take back product that isn’t performing for you. This is a way for such brands to control where, when, and how their designs are discounted. In this case, discuss your plans for dealing with the excess inventory with the brand and see if returning the merchandise is an option.
5) Third-Party Discount Retailers
Even after offering deep discounts to sell your excess inventory, you may still be left with product that you cannot sell. At this point, your focus should be on getting rid of your excess, making room for new receipts and freeing up cash. Selling left-over stock to discount retailers, both online and off, is how most major fashion retailers and brands deal with end-of-season merchandise, but you’ll need to have a large enough amount of product to get these third-party retailers interested. If you sell your own branded merchandise, consider the impact of having large amounts of your product on another website or in brick-and mortar stores at significantly discounted prices.
6) Online Marketplaces
If you are trying to sell smaller amounts of excess inventory, look to online marketplaces like ebay.com. There you’ll find many buyers looking to buy smaller amounts to resell online or at flea markets and swap meets. Make sure you understand where and how your potential buyers plan on selling your merchandise to avoid any conflicts with your own business.
7) Sample Sales
Despite running a fashion e-tail business, taking your excess product offline may be a good solution. Hosting a sample sale is a great way to heavily discount merchandise for a quick sale without damaging your online reputation. You might consider partnering with another local retailer or fashion brand to create a larger event and draw more customers. Depending on where you’re located, there may be companies that will host your sample sale for you for a percentage of your sales, removing the need to manage the marketing and logistics of this kind of event yourself.
Finally, it may be a better option to donate your excess inventory to charity rather than writing it off completely if you are unable to sell it any other way. Depending on your local laws, there may even be tax benefits in making this kind of donation to nonprofit organizations. Consider making your charitable donation a marketing event or part of your CSR story, all while building awareness for the efforts of your chosen charity.
Excess inventory is an inherent part of of doing business in the fashion industry. Even the best merchants must deal with excess inventory, given all the variables that factor into each selling season. The first level of managing inventory is to evaluate your stock position regularly. Then, when issues arise, deal with inventory excesses before they get out of control, tying up resources, restricting cash flow and impacting your overall profitability. When it comes to managing excess inventory, focus on mitigating loss rather than trying to maximize profit.
Eric Fitzgerald is an independent business consultant with nearly two decades of experience in the fashion industry, specializing in business development, brand management and mentorship for fashion businesses. He is Founder of Fashion Business Insider, a blog committed to helping entrepreneurs navigate the business-side of the fashion industry.