Responding to consumer demand is always in fashion.
In the world of fast-fashion, retailers constantly face the challenge of ensuring their stores and online distribution centres have the products consumers want, in the size and colour they want, when they want it. As consumers’ buying behaviours are becoming more volatile and less predictable, basing replenishment on forecasting can often lead to out-of-stocks or excess inventory. However, by implementing a demand-driven replenishment (DDR) model, retailers not only can increase full-priced sales, but also improve operational efficiency, while fully meeting consumer demand.
Fashion moves quickly, making it difficult for larger retailers to optimize each stores’ inventory. However, setting a maximum inventory cut off within its supply chain management (SCM) system allows retailers to identify which stores have the highest needs for products, while maintaining product availability for its e-commerce channels at the same time. Optimizing inventory means higher full-price sales and lower clearance markdowns – resulting in higher profit margins.
For example, if products sales are higher than expected, retailers can limit the DDR increase when it is determined that the frequency of replenishment to the store is high enough that additional replenishments would result in an overstock. Another example is if a store has low sales over a set period, the system recognizes this and sets the maximum stock for the store to zero, so it no longer receives replenishment. This allows retailers to prioritize limitedly available stock for stores selling those products at higher rate.
Efficiently Managing Replenishment
Another benefit of utilizing a sophisticated, cloud-based SCM platform for DDR is that it allows retailers to manage a high number of possible replenishment combinations. This is very important for fashion retailers, such as the fashion retail chain WE Fashion, who manages up to 5 million store SKU combinations on a regular basis.
Once the merchandising team sets the DDR parameters in the SCM platform, the systems manages all routine replenishments. This allows the merchandising team to manage replenishment on an exception basis – reviewing system alerts and exceptions and taking the appropriate action. This saves manual effort on all routine operations and allows merchandisers to concentrate on the tasks where they can add the most value.
Leveraging Multi-Channel Retail Insights
One of the biggest challenges for international multi-channel fashion retailers is returns. Online consumers do not always return a product to the channel they bought it. Another challenge with returns, especially for European retailers, is that consumers may wish to return it in a different country if they live near a border. This leads to the key challenge of determining where reserve stocks need to be located in order to maximize responsiveness to sales.
This is where retailers can leverage the large amount of data gathered during the consumers buying process. For example, when retailers compare browsing histories to purchase histories they can gain tremendous insight into consumer behaviour. These insights can help retailers determine the true demand for specific items, as well as if out-of-stocks drive sales of substitute items or if the true demand was for something else. This insight allows retailers to adjust their forecasts and inventory replenishment more accurately based on actual demand.
With replenishment based on actual demand, the benefits will begin to roll in. Multi-channel fashion retailers can optimize their inventory at the store level and maintain product availability for their e-commerce consumers. In addition, the combination of DDR in a sophisticated SCM platform provides operational efficiencies by allowing merchandisers to manage replenishment on an exception basis. Finally, leveraging the data from e-commerce sites further enables retailers to optimize their inventory based on consumer demand. The results are increased sales, improved customer service, a more synchronized supply chain and greater profitability for everyone involved.