How to manage seasonality in the fashion industry?
In retail and wholesale fashion companies the business needs to be able to make a seasonal planning for all products. The planning will keep track of the start and finish of all activities which need to take place within the product lifecycle. When to start designing, when to source the raw materials, when the sales start and end, etc.
The product lifecycle management has to be created and managed according to the business needs and with a detailing applicable to the complexity of the processes within the company.
A good product lifecycle management will help business management and end users to keep track of the increasingly complex processes related to the fashion business and make sure the processes run smoothly and on time.
For many fashion wholesalers, products inventory and stock the asset that generates the business's sales and profits. Indeed if they are managed efficiently, seasonal planning can be used as a tool to increase sales and thereby make more profits. But without careful planning, it can easily cause problem, resulting in heavy markdowns due to overstocks.
How could you manage seasonal fluctuations? How to develop detailed sales and inventory plans before the season begins?
Here's a seven step process you can use to plan your inventory needs in advance.
Step 1: Getting Started
Before you begin the planning process, you need to know what you've sold in the past and use this information is an important reference point.
Step 2: Plan sales
Starting from your prior sales trend build a solid sales plan: make adjustments based on promotions, out of stocks and unusual events, such as weather. Always keep in mind that you should plan according to the most likely level of sales, instead of the most you could possibly sell.
Step 3: Plan inventories
Once a sales plan has been developed, the next step is to build an inventory plan. The question to ask is this: 'How much inventory do I need to support the next sales phase?
You need to plan an inventory to:
Set your displays,
Support your planned sales until the next delivery, and
Provide a safety stock in the event of an unexpected sales spike.
Step 4: Plan discounts
There are two primary types of discounts a retailer might take, promotional discounts during the season, and clearance markdowns as the season winds down. Planning these discounts goes hand in hand with planning sales and inventories if you are using retail value as your unit of measure. A discount, just like a sale, decreases the retail value of your inventory on hand.
Planning clearance markdowns are particularly critical to protecting gross margins, and cash flow. If you plan the date of the first seasonal markdown before the season even begins, you can plan the inventory you want to have on hand at that point in time, and thus your markdown percentage.
Step 4: Plan inventory receipts
If you've planned sales by month, ending inventories by month and discounts by month, it's easy to calculate how much inventory to bring in each month, by category. You need to bring in enough to cover that month's planned sales, planned discounts and planned ending inventory, less the prior months planned ending inventory. In this way, for example, a buyer can know before a season begins how much inventory to plan on bringing in each month of the season.
Step 5: Plan pre-season commit percentages
Once inventory receipts have been planned, the next step is to plan how to execute those receipt plans. The question to ask is, 'How much of my receipt plan do I want to commit to buying now, before the season begins?'
The pre-season commit percentage is the percentage of the season's receipt plan that you commit to before the season begins. It's the bets you place before the season has even opened up. Every seasonal retailer has to place these bets. A seasonal retailer has to commit to enough inventory to set displays and cover early sales, sales which are a critical early indicator of the season to come. Similarly, a retailer frequently has to commit up front to merchandise scheduled for delivery later in the season to assure they'll have core stocks of key items and categories at that critical time.
This is a critical step that is too often overlooked. Too frequently, once a receipt plan has been set, buyers spend it. But that is fraught with danger. The greater the pre-season commit percentage the greater the risk associated with those commitments. The best way to think of this is in terms of the calendar. The higher the pre-season commit percentage, the further out into the selling season those commitments will cover, before any sales have been made to indicate which way the season will go. Will I run an increase or a decrease? Will the styles or colors I've bought be the hot sellers? The further out the commitments go the greater the risk that overall sales volume may not be as high as planned, or that the fashion trend may develop in a different direction than anticipated.
Step 6: Plan continually throughout the season
The process doesn't end with preseason planning. In-season planning is even more important. As each week goes by, and sales trends begin to develop, adjust your sales plans accordingly, and adjust inventory plans for those updated sales plans. If sales are exceeding plan, you want to be sure you have the inventory to keep the momentum going. Conversely, if sales are coming up short of plan, the sooner you adjust your inventory plans, and thus your scheduled receipts, the less likely you are to end up with excess inventory that needs to be marked down at season's end.
Every time you are about to place a reorder, or a new order on new merchandise, update your sales plans. A buying opportunity may look very attractive and seem like an easy decision, but if you are already bought up or sales are not tracking to the plan you could be unintentionally increasing your markdown exposure.
Step 7: Take markdowns expeditiously
When sales start to fall behind plan, it's very tempting to think that you'll make up the sales later in the season. But when sales fall behind plan, inventories begin to back up as well. When inventories back up, pressure builds on prices, which if not addressed can lead to steep markdowns that decimate margins. The first thing to do is adjust future receipts to get inventories back in line, but it usually doesn't end there.
When sales are soft, the weakest of your items or categories will usually suffer disproportionately. They simply aren't as desirable at their full retail price. Mark them down as soon as you identify them. A 25% markdown, for instance, taken immediately, will accelerate their rate of sale and get you out of that inventory. If you wait until clearance time, when everything is marked down, it may take 50% to 75% to clear the inventory.