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Is Dead Stock Killing your Fashion Business?
Survival Cheat-sheet for Micro & Small Fashion Businesses......One bite at a time!
Leena has been running a boutique where she sells apparel and accessories for women. Her college friend Saavi, runs an e-commerce portal where she sells similar product categories online. While the two had been remotely in touch, they happen to meet in their hometown after almost a decade. After reminiscing about their college days, the discussion steers towards their business experience. They are surprised to realize that although their specific offering, suppliers, customers & modes of operation are entirely different, both are dealing with a common villain. Their business is not making enough profits despite good sales. The issue of unsold inventory (dead-stock) is eating up business revenues. This is particularly discouraging as running a business is a physically & emotionally exhaustive experience. More so when the business is in small or micro stages as one often ends up working single-handedly (one cannot afford to hire contractors for a small business) at multiple aspects like sourcing, display, sales, taxation, customer service, advertising etc. Running a small business is an all-consuming experience and losses because of unsold inventory is the last thing one can make peace with at the other end of the road.
So Leena & Saavi decide to analyse their modes of functioning and come out with notes/tips on how to curate an apparel/accessories inventory that sells well, increasing net profits!
Are you planning to venture into the clothing & accessories business OR you are already dealing with this dead-inventory monster? The trick lies in curating an inventory that is more likable to sell. But how does one predict, what will sell? Following are some of the tips for curating a hot-selling apparel inventory.
1. Identify the demographic & psychographic profile of your typical customer groups
Any small apparel business would typically deal with 3-4 customer group profiles. Each of these profiles would have specific demographic and psychographic characteristics like age, profession, likes, dislikes etc. However, it would be worthy to also make note of the typical body types in each of these profiles. A young mother, a teenager, a mid-aged woman would typically have different figure types. The apparel offered to each profile should accentuate the desirable characteristics of the figure while playing down the undesirable ones. At the same time, the collection on offer should be able to address the culture and lifestyle of your customer profiles. Offering ornamental collections to corporate clients might win likes and appreciation but not sales even though the customer might be happy to pay in the same price range.
2. Map Inventory with Fashion / Colour Forecast for the season
Fashion seasons run biannually i.e., Spring-Summer (March-August) & Autumn-Winter (September-February). However, most revenue generation happens in the first two months of each season as these coincide with upcoming festivals in most cultures, and in general the onset of a change in weather triggers a change in wardrobe. The style & colour forecast for the next fashion season is usually available free of cost online 2-3 months ahead, i.e. when you as a seller are placing orders for the next season.
It is important to note here, that style & colour predictions are actually released a couple of years before a particular season. However, at that point, it is available as a paid tool to a select set of people at a certain cost. However, it makes more sense for the manufacturers and merchandisers to avail of that paid access so that they can manufacture/commission big orders in advance keeping enough time for production and shipping.
Microbusinesses are usually traders or piece order customizers and therefore accessing the free available forecast just a few months ahead makes more sense. An interesting point to be noted here is that most of these forecasts are available as reports and summaries on the ramp fashion marked for the particular season. Looking at these forecasts can be quite overwhelming for small apparel businesses as first instance none of them would match their customer’s requirements.
Small business owners need to dig deep into the ramp pictures and take notes about the match-ups, silhouettes, garment lengths, fit, textures & colours. These 6 elements should be on your mood-board (real or virtual) while you are curating your inventory for the next season.
For ex. Notes on Autumn-Winter-2022 would reveal matching lower & upper coordinates, micro-minis or floor lengths & a peculiar absence of black & blue along with return of 90s styled double-breasted, over-sized outer-wear and drop-shoulders in casual wear. Similarly, the forecasts would provide an extensive view of the transparency, texture, and fall of the fabrics in fashion. It is these elements that need to be mapped with the product features being offered in the wholesale market. The actual wearable apparel available in the market would broadly look very different from the ramp fashion. However, if the inventory has 3 or more elements mapped like the right colour/silhouette & texture, chances are that it would sell well and fetch good margins.
3. Reduce Bundle Buying
Bundle buying is a norm in traditional cash-&-carry apparel wholesale markets, more so in Asia. Most of the time these bundles are made of the same design spread across 4-5 different sizes. Bundle buying is the biggest factor behind dead inventory for these reasons:
a) Bundles are designed on wrong assumption that customers are evenly spread across different size groups. The truth is that approximately 70% customers would be limited to two size groups like XL & 2XL. Whereas, rest 30% would be in S, M & 3XL brackets. Bundle buying means that the small business entrepreneur keeps knowingly adding non-selling sizes to the stock, while replenishing supplies for the quick-selling size groups.
b) Bundle selling assumes that the same styles go well for different figure types. If gathers are in trend this season, S, M & maybe L-sized customers would not mind wearing gathers at the midriff. However, the same cannot be sold to XL, 2XL and 3XL customers. A Customer of these size groups would rather prefer incorporating gathers at shoulders or sleeve hem. Thus, a season-appropriate style might also add to unsold inventory because of bundle buying.
4. Minimise Returns due to Misinformation
Although, more relevant in the case of e-commerce; most businesses incur losses not because of low sales, but the losses happen while achieving high sales and an equally high proportion of returns. Whereas the customer is expected to receive a full refund on a return, the business typically ends up paying double the shipping amount (both onwards and return) and additionally bears the risk of damaged return and inventory stuck in shipping cycles making it unsaleable.
Unfortunately, the early valuation game in start-ups overemphasizes the importance of sales figures. This leads to distress selling leading to high return volumes making apparel e-commerce unsustainable. High returns have been one of the key reasons for promising e-commerce brands shutting doors because of unsustainable profits.
The proportion of returns can be brought down significantly by providing exhaustive information about garment dimensions ( neckline depth, garment length etc.), fabric type, transparency, and wash care instructions. Making sure that the picture looks just like the product and not better than the product can also help the customer in good decision-making and reduce return rate.
It is wiser to set up the showcase (real or virtual) to help the customer take valid decisions instead of impressing an impulsive sale that would eventually backfire.
5. Provide Sizing pointers with common reference
Sizing is one of the oldest issues that continues to bleed apparel-based businesses. A part of the problem is the non-availability of standardised, updated, localized size charts. Western apparel industry still heavily relies on American and European size charts which might not be the right fit for women from other ethnicities. There have to be real efforts toward the compilation of sizing data for every country, every decade. The irony of the situation is that even where the data is compiled, it is not been made easily accessible to the local small and medium-scale manufacturers who form the backbone of the domestic apparel industry.
However, a successful entrepreneur does not sit and justify losses by citing issues. They find their way around them. It can be useful to map your product sizing with commonly worn apparel like undergarments, tees etc. It would be helpful for your customer if your product sizing description is accompanied by small note saying ‘select size X if you wear a bra of size Y or a t-shirt of size Z!’. This piece of information would lead to better decision-making by customers instead of labelling apparel with unstandardized L, XL etc.
6. Sell Omnichannel
Fashion retail is going through challenging times where customers are spoilt for choice. While the days of 100-200% margins are left far behind, drop shipping and WhatsApp selling have further demystified fashion shopping by over-exposure. We are looking at times when customers might not bother to come over to your store (literally or virtually). The seller needs to mark their presence in places expected to be frequented by customers.
The mantra for good sales is "Sell Omnichannel AKA Be everywhere"! Most website admin platforms provide the functionality to manage online stores, Facebook/Instagram stores, and POS via a single platform. Some even go further by aligning this platform with eBay or Amazon stores. It is not uncommon for big traditional showrooms to engage influencers on Instagram reels and Facebook stories.
The equation is simple, more outlets (real or virtual) would lead to more sales and less dead stock. So go Omnichannel, especially when technology has made it so simple for you!
How to Manage Unsold Inventory in Fashion Business?
Your best efforts can reduce the proportion of unsold inventory to a large extent. However, there is never going to be a scenario where 100% of inventory sells (It is a common practice in traditional clothing businesses to factor in a percentage of dead-inventory cost while calculating net costs). A business owner should be continuously looking at ways to monetize this dead stock albeit at low or negative margins. Strategic removal of dead stock provides that last buck from otherwise dead stock and also breathes a fresh wisp of air into business by decluttering and freeing useful space. Some of the backchannels that can be regularly activated for mobilising dead stock are:
1. Flea-markets
2. Flash sales on Social media
3. Credit-based tie-ups with local boutiques with a different socio-economic customer profile
Dead stock is the most significant villain in any fashion retailer's success story. Managing this villain strategically can improve business profits and make fashion businesses more sustainable in this era of free-falling margins and over-zealous multi-layered competition in the market.
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