The Excess Stock Problem: How Retailers Can Move Forward

By Gavin Fallon (pictured right), General Manager for UK, Nordics and South Africa at Board International.

Retailers around the world are facing unprecedented challenges. Many were already struggling to contend with the need to balance consumer demand with profitability, and with the recent shutdown of all non-essential retail their plans were thrown into chaos. Fashion retailers, in particular, are bearing the brunt of the lockdown. According to the ONS, clothing sales fell 50.2 percent in April, compared to March – although March sales had already fallen by 34.9 percent when compared to February – while the retail sector as a whole fell 18.1 percent between March and April. To make matters worse, estimates have suggested fashion retailers will be forced to write-off £15bn worth of spring and summer stock due to the crisis. As the world begins to take tentative steps to relaxing some lockdown measures, fashion retailers are contemplating how they manage re-opening their physical stores. While this includes considerations about the safety of their customers and staff, they also have decisions to make about stock. With half a season of sales missed, a proportion of stock locked on shop floors behind closed doors and orders to suppliers cancelled or reduced, retailers must now decide how they move forward.

While all retail sectors are under pressure, fashion has a challenge thanks to the seasonal nature of its collections and sales. Of course, this is not a problem unique to the current crisis, but it has been exacerbated by the shift in consumer buying over the past few months. For example, as we head into summer, there would ordinarily be an uptick in people buying clothing or accessories for weddings, BBQs, summer holidays and the like. With many of these events cancelled for the foreseeable future, sales of those usual summer best-sellers are likely to be slower. In addition to a shift in what people are buying, the way people buy is also changing. As more customers switch to purchasing online – some for the first time – out of necessity, the landscape has once again changed, adding further complexity and questions – will consumers shift to online more permanently or will they return to physical shops? Will brand loyalty have eroded with wider options available online? How do retailers bring those customers back?

The issue of sustainability has also been further impacted by the crisis. Fashion retailers have made great strides in improving the sustainability of products as consumers and retail organisations alike have become increasingly conscious of the impact fashion, particularly so-called ‘fast fashion’, has on the environment. Reports suggest high-street retailers have cancelled £2.5bn worth of clothing orders from Bangladeshi suppliers, with excess stock heading to landfills and at least a million workers losing their jobs as a result. A study last year found that over half of consumers in the UK and US want their fashion to be more sustainable and awareness of everything from working conditions through to the impact of throwaway fashion is becoming increasingly more important to shoppers. Retailers, therefore, have to consider the impact of the decisions they make in regard to excess stock and later collections on their sustainability goals.

So how do retailers move forward in a situation rife with complexity? All fashion retailers want to protect the value of their brand, as well as the bottom line, and no business wants to be heavily discounting stock if it can avoid it. In usual times that means walking the line between having the right goods in the right place at the right time and not oversupplying any lines or stores. However, with sales falling, excess stock is something most brands cannot avoid right now and offering markdowns is one route to both clearing that excess stock and getting sales moving. On the other hand, heavily discounting stock in a retailer’s own store is likely to hurt outlets – an important channel for many retailers. So, could that excess stock be provided to outlets for them to sell on, and the retailer simply skip a season in their own stores? In fact, Harrods recently announced it will be opening its own outlet to shift its excess stock and allow for its main site to be restocked with more up-to-date lines.

Each retailer will operate under unique circumstances and the route to take for one will not be right for another. Taking the Harrods example, there will be few organisations who will have the means to follow the same route, so each needs to assess their own situation to determine the best direction for their circumstances. This requires some careful planning based on a sprawling array of variables and understanding the implications of different scenarios will be crucial to success. This is the ability to conduct ‘if this then that’ calculations to gain insight into how different routes will impact the business on all fronts. For example, if you markdown all stock left in physical stores upon re-opening, what does that mean for the bottom-line? What if you move all excess stock out of stores and sell it at markdown online to make room for new lines? What does that mean for staffing costs? How do these decisions impact the customer experience and therefore brand loyalty if stock is unavailable? How are sustainability goals impacted? With the ability to conduct in-depth and accurate scenario planning, retailers can be provided with confidence they are making the right decision for their circumstances.

There is no doubt that a careful balancing act is at play in a fashion retail environment all the time, but with modern tools available retailers now have the opportunity to make more robust decisions based on deep insight into different scenarios. In challenging times when retailers cannot afford to make decisions based on assumptions, accurate insight will be key.