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More operational investments to help brands grow, manage unsold inventory

"Sound inventory management is gaining importance as this year around 11 of the 16 major retail companies globally, selling apparel, footwear or accessories, filed for bankruptcy. Majority of companies are dominated by private label products. Poor inventory management is driving retailers to such dire straits who have now pledged to maintain a good inventory hygiene."

More operational investments to help brands growSound inventory management is gaining importance as this year around 11 of the 16 major retail companies globally, selling apparel, footwear or accessories, filed for bankruptcy. Majority of companies are dominated by private label products. Poor inventory management is driving retailers to such dire straits who have now pledged to maintain a good inventory hygiene.

Moody’s recently predicted a 20 per cent decline in the operating income of most department stores instead of its earlier prediction of 15 per cent. Most of these retailers optimised the gains from their operational efficiencies and managed to better match inventories and consumer demand. In October, Moody’s lowered its outlook for apparel brands from positive to stable citing a stronger U.S. dollar.

Inventory growth leads to declining sales

Rating agency UBS also named inventory growth as one of the top reasons for declining sales during the 2019 holiday season. The agency revealed that in September theMore operational investments to help brands grow manage unsold inventory inventory growth for apparel, footwear and accessories outpaced sales growth for four quarters. This was mainly due to the way apparel is sourced and the priorities of operations teams dictating those purchases, which leads to overbuying.

The importance of demand forecasting, from style to quantity, is increasing in the modern apparel industry with Retailers like Kohl’s and brands like Nike decreasing their lead times leading to a more responsive supply chain and more relevant product.

Need to choose wisely

Above all else, supply chains are optimising costs. Though they face lower risk as the cost of their goods is low but they require larger orders and more lead time which creates an uncertainty in the market. To lift this burden of inventory management, brands should change their method of choosing suppliers by emphasising on speed and flexibility rather than the cost of materials and location.

Sound financial health leads to growth

Omnichannel operations require advanced inventory management skills. Whenever, retailers increase their omnichannel options, they also increase investments in technology and inventory. This leads to stranded inventory and eventually markdowns.

Many apparel sellers still need baseline operational investments to bring their supply chains into the omnichannel age. Brands can neither shift to a more flexible supplier nor can they adopt new inventory management technology without funds. Their ability to change, beyond self-awareness and will, stems from their financial health that runs much deeper than cost of their goods sold.

 
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