Points of view | Insights

Inventory is at the heart of a retailer’s performance and its optimization has an impact on the entire company and its results. Optimization does not necessarily imply a reduction, but rather a continuous adaptation of the stocked quantity everywhere – anticipating variations in demand.

This optimization has many positive effects:

• fewer out-of-stocks, resulting in better customer satisfaction and an immediate and sustainable increase in turnover
• shorter lead times, which also leads to better customer satisfaction and loyalty, as well as an increase in turnover
• less stock to be sold at the end of the season and therefore an increase in margin
• less stock held by the company overall and therefore a “release” of financial means to invest and develop the network and/or sales channels

To maintain a dynamic product offering, ready-to-wear brands base their strategy on frequent renewal. They rely on planned mini-collections and regular updates.

The sales periods are organized around market events, allowing the product offer to be punctuated by a succession of targeted “themes”. The product life cycle is short and weekly sales per item are low. The back of the shelf is made up of more or less permanent “basic” items that must be able to fit into the themes. Some principles remain inherent: buy less but better, adapt production to demand in a very reactive market where collections follow one another, where sales are sensitive to the weather and where supplies can take several weeks.

After the stock enhancement actions, if there is still stock in the points of sale, comes the time of the markdown, which is the very principle of the sales.

Very often, with the same market events and the same offer in place on the shelves, the stores in the network present a great disparity in turnover. In a large and heterogeneous network of outlets, the turnover coefficient is greater than 3 between the leading outlets and the average.

Of course, the attractiveness of the location of the stores, the priorities given in the use of the available space or even the historical turnover must be considered. Theoretically, in order to attract customers and increase the likelihood of sales, a brand should be able to display a maximum number of items in the store. However, sales areas are not expandable and the price per square meter remains a thorny issue. Optimizing inventory is therefore a priority for stores. For example, low or medium capacity stores are more affected by shortages than high-capacity stores.

In addition to this stock management issue, new customer requirements in terms of services have been added: from now on, customers expect brands to provide information on their stock in real time. The final consumer expects to be able to order and pay for it online and then pick it up in the store of his choice thanks to click & collect. He also expects to be able to check the stock of his usual store before going there to try and buy the desired product. Also, in order to attract customers to physical stores, some offer and promote limited stock items online, which are only available in store.

Our experience has shown that the network’s turnover will grow if all stores are treated equally.

The risk of stock-outs in the store depends on its initial stock and the rules for allocating available stock at the central level.

To minimize stock-outs in efficient stores, the need for reactivity and flexibility is paramount. This implies prioritizing restocking and/or increasing responsiveness “locally”.

Store stock must be replenished with sold items to maintain the balance and dynamics of the in-store offer. Continuous supply ensures reactivity and fluidity; the adequacy to the real sales is ensured by the acceleration or the slowing down of the rotation. One way to do this is to optimize inventory that has the lowest turnover and leverage point-of-sale orders.

The amount of stock available in a store must therefore depend on its storage capacity and merchandising rules. It is the good rotation of the stock that creates value and not the quantity of stock because having more stock does not necessarily mean more sales.

The main steps to follow:

Once the products have been received at the warehouse, the best thing to do is to return them, if their condition allows it, to a network of outlet stores, to specialists in destocking. They can also be sent back to the same outlets for the next sales. As these products have already had their chance, their sales potential is not certain and their supply would further degrade the margin: thus, the last pieces could be sold to discounters and generate cash.

Other possibilities are to be explored in order to sell the remaining boutique stock, such as selling it on a dedicated website or a branded destocking store. However, this competition can be frowned upon by physical networks. Some premium brands have abandoned their dedicated destocking website in order to preserve their image.

The ideal is finally to be able to sell these residual stocks from the warehouses but also from the stores on a website during the season. For this, it is necessary to have all the stock in one physical place: a logistic warehouse. It will be necessary to collect the residual stocks in store when there is still time and when the products correspond to the market need.

These solutions generate cash, save margin on these products and free up store space for new items.
Logistical complexity: batches of mixed garments, often without labels, arrive in the course of deliveries. These items must be sorted, repackaged, stored and then prepared again and sometimes reshipped within 24 hours.

Simplicity and efficiency guarantee a good reactivity, operational adaptability, organization of the collection, synchronization with the commercial network, traceability…

In all cases, only a global vision of the value chain, both inbound and outbound, from a financial and operational point of view, will enable the right decisions to be made. If inventory has a value, it also has a cost.

If the implementation of digital tools is necessary in the store, the real challenge is not necessarily in the store, but in the back-office functions and the knowledge of stocks. Retailers must have a unified vision of their stocks (store, web, reseller) and have a geolocation of all their products, with regular updates. Obviously, not all retailers have completed their transformation, requiring heavy investments. As soon as you want to share the inventory, you have to centralize data from the store and the warehouse, which is a major undertaking.

Case study: results obtained at a textile distributor

3. SIMPLIFICATION AND OPTIMIZATION OF WORKING METHODS

In the warehouse:

• Time savings are achieved on the preparation of themes.
• Smoothing of the load made possible thanks to the new restocking rules.

At headquarters (downstream flow management):

• Simplified, systematized and automated implementation and restocking procedures.
• Decrease in the number of complaints from the boutiques.

At the level of the boutique network:

• Sales teams made aware of the need to “sell better”:
  • Immediate sharing of results and winning practices.
  • Pushing available items.
• Facilitated forecasting and commercial processing of out-of-stock items.
• Reception and storage of merchandise for restocking now spread out over the week.