Pile up: how fashion retailers can minimise (and shift) excess stock

Dan Gold on Unsplash
  • By Jill Liliedahl, retail expert and global director of product marketing at Inventory Planner

The last two years have been a roller coaster for fashion retailers. 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 an increasing threat of reduced customer spending, some retailers who overstocked during the pandemic are stuck with mountains of goods they can’t shift.

A survey of 500 fashion retailers (including multiples and independents) by forecasting software provider Inventory Planner found that 22 per cent of excess stock was written off altogether last year. It estimates that fashion retailers are sitting on an average of £53,000 worth of product they can’t sell due to the downturn in consumer spending. Almost half said there would be ‘dangerous ramifications’ for their cash flow if they failed to sell excess stock.

With this in mind, here are seven ways to stop excess stock from crippling your business…

1. Treat each sales channel individually  

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 at. Some merchants make the mistake of treating all the customers in every sales channel 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 stock.

2. Focus on minimising returns

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 after a sales period, there are a number of strategies you can use to shift the stock.

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. Alternatively, retailers can sell bundles of products, so more stock out moves out at the same time. In fashion this could be two different colours of the same garment, or the garment with a coordination 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. Clear out stock that hasn’t sold   

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 items that simply aren’t moving. After all, holding onto inventory is actively costing your business money. Find ways to completely clear some items out, such as donating stock to charity. There are some targeted charitable sites that offer clothes to women who might be re-entering the workplace, for example, and need help finding affordable work clothes.

5. Don’t plan too far in advance  

A lot of the excess stock issues we are seeing with fashion retailers currently is due to an overreaction 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 order smaller volumes of stock more frequently. 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 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 underperforming 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. However, a recessionary environment calls for a different strategy that is focussed on healthy cash flow and profit.

This is true for all merchants but especially those in apparel with overstock issues. They need to decipher what’s really working and contributing to profit then take a granular approach to analysing data on a daily and weekly basis to reduce overhang.

Read Inventory Planner’s free report on tackling New Year excess inventory here.

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