Fashion Brands: 7 Ways to Reduce Excess Stock to Survive the Cost of Living Crisis

Article by Jill Liliedahl, retail expert and global director of product marketing at Inventory Planner 

Inventory Planner software is used by thousands of fashion retailers – big and small – to manage stock effectively and optimise inventory purchasing.

It has been a tough start to the 2020s for fashion brands. The supply chain disruptions of 2021 led to many merchants struggling to get their hands on enough inventory, and then overbuying to compensate in 2022.

But now, with an economic downturn looming and the threat of reduced spending increasing, stores who overstocked during the pandemic are stuck – hoarding mountains of goods that they can’t shift.

A survey of 500 fashion retailers by forecasting software provider Inventory Planner found that 22% of excess stock was written off altogether last year by clothing retailers.Almost eight out of ten apparel retailers (77%) are planning to offer even more discounting to try to shift the unwanted products. More than half said they were ‘greatly concerned’ about their ability to shift excess stock and 56% said it would be difficult to absorb the loss of marking down prices and liquidating unwanted products.

The survey found that 70% of fashion stores struggle to predict customer demand and sales in this fluctuating market and 26% do not know how to calculate excess stock. 

Several fashion brands have reported issues with excess stock.

Clothing company Joules said extensive discounting to clear inventory had hurt its profit margins before it crashed in November last year. It was bought out of administration by Next.

Peak trading in December for many fashion ecommerce sites was hit by the postal strikes, and several fashion giants have recently issued disappointing trading updates including Boohoo and ASOS.

Fashion retailers are sitting on piles of unsold clothing due to a hangover from previous supply chain issues, and poor demand for current season stock.

Marks & Spencer was forced to “re-adjust stock flow” and discount coats, jackets and boots by 20% to clear excess stock as milder weather combined with customers cutting back led to poor sales for some winter ranges.

ASOS is planning to write off £100m and £130m of out-of-fashion inventory to help refresh its brand. ASOS has also partnered with Secrets Sales, the discount market place for fashion, to clear the backlog of excess stock and boost revenues.

And some retailers are hibernating excess winter stock to sell in Autumn/Winter 2023 rather than discounting.

With fashion brands struggling with all these headwinds, here are seven ways to reduce excess stock to survive the cost of living crisis.

1 Be aware of the different ‘personalities’ of different sales channels 

When we are talking about small fashion brands that might be selling online and have one or two brick and mortar shops, each of those locations and each of those ways of selling is going to have its own personality – in terms of what sells well and at what rate it sells. Some  merchants make the mistake of treating all the customers in all the sales channels the same way. So they will be overstocked in one location and understocked in another with the same garment. It is important to take a close look at what is selling in each location and balance out stock levels so that you have more flexibility. You get very different customers online to in store and it is important they are treated entirely separately when it comes to replenishing fashion stock.

2 Returns are always a huge issue for fashion retailers – dig into data to keep them as small as possible

Returns are always a huge issue for fashion retailers. Returns volumes online will be different to in-store where customers can touch it, try it on and get a better feel for the garment. Online you are seeing people buying a couple of sizes and knowing full well that one won’t fit and they plan on returning one or both. There is a huge cost to that and it impacts on stock. The key with selling online, particularly when you are selling multi-brands, is giving the customer accurate pointers about how a brand’s sizing works. Some sites will tell customers, ‘based on other things you have purchased, this should fit well’. They use their customers’ sales history to help them find the right size. It helps them to make a translation in sizing so that they know exactly how a brand’s sizing works. Dig into your store’s data to see which products are returned more than others. Consider adjusting merchandising and product page content to provide missing information that might be driving these returns.

3 Discount effectively and know when to stop 

Obviously even the most efficient fashion retailer is left with excess stock even after discounting and effective stock control. It is the nature of retail. The trick is to limit this excess.

If you are still stuck with garments even after New Year sales, there are a number of strategies.

Upselling – if you buy this item at full price, we are going to throw in this (excess stock) product free or at a discount. This can work better than simply discounting the unwanted item further when it has been clear it has not been selling on its own. Upselling rather than discounting helps to preserve the quality of a brand. Discounting trains customers to be price conscious and wait for sales.

You can sell bundles of products so you are moving more stock out at the same time. In fashion this could be two different colours of the same garment, or the garment with an accessory. Most retailers have free shipping thresholds. By bundling products, you increase the average order value while only adding marginally to the shipping cost, thereby increasing profit margins.

4 Don’t be too precious about squeezing every penny out of an item

You cannot afford to be precious and try to squeeze every penny out of an item. Time is money and space is money – either in store or online – and you do have to be ruthless about some items which are just not moving. Holding on to inventory is actively costing money. Find ways to completely clear some items out. This could be donating it to a charity and there are some targeted charitable sites which offer clothes to women who might be re-entering the workplace and need help finding affordable work clothes.

5 Don’t plan too far ahead 

A lot of the excess stock issues we are seeing with fashion retailers currently is due to an over reaction to the supply chain issues of the last two years caused by the pandemic. So many fashion retailers made the mistake of over ordering because they were so fearful of running out of stock altogether. One strategy to eliminate the risk of these errors is to put a new strategy of ordering small volumes of stock but more frequently. You have some fashion businesses putting in purchase orders for months at once which is such a long time. Talk to your suppliers. Can you give them a seasonal demand forecast while placing purchase orders for one month or a few weeks at a time. Yes, you might pay a little more for the orders but it could save you money by not being stuck with garments you cannot sell. Given the economic headwinds, cash flow should be a top consideration more than ever before. Even profitable businesses can get in trouble by not having cash on hand that they need. 

Having up-to-date data you need to make smart decisions is also crucial to fashion brands so that they can stay flexible across breaking trends.

Being flexible makes it easier to react to unforeseen events. Think back to 18 months ago. Who could have predicted the war in Ukraine and its impact on energy prices and therefore inflation? Or let’s go back three years and the start of the pandemic – no one could have predicted the unprecedented global disruption. it is impossible to foresee these things which is why it is dangerous to plan ahead too far. No one has a reliable crystal ball.

6 Be ruthless when you are re-stocking

It is all about focussing on what the customer wants. You may be restocking a best selling item but it only really works in six of the eight colours that you stock. Ditch those two under performing colours. That is where a supply chain tool such as Inventory Planner can be so useful because it can tell you in an instant what colours to ditch in each sales channel. Don’t just do what you have been doing for years – instead use software tools to hone in on the data and find out what is working. Get ruthless about what is not working. That is less exciting than adding products and it doesn’t always get the attention it deserves. Review that data regularly to stay on top of changing demand.

7 Focus on profit

In a healthier market, many fashion stores focus on growth, but  a recessionary environment calls for a different strategy, one focussed on healthy cash flow and profit.

This is true for all merchants – but especially those in apparel with such overstock issues. They need to work out what’s working and contributing to profit – and take a granular approach to analyzing data on a daily and weekly basis in order to reduce overhang.

* Inventory Planner has released a free report on how to tackle New Year excess inventory, which is available here.