In the seasons before the pandemic, the fashion industry was finally on its way to developing a more sophisticated understanding of how to track and utilize consumer data in making forward-looking decisions, especially about trends and inventory allocation. But amid a pandemic that continues to impact virtually all aspects of the consumer experience, is historical data as an accurate predictor of shoppers’ future wants and needs?
Ahmed Zaidi, CatalystAI founder and postdoctoral researcher at Cambridge University, spoke to the issue at Sourcing Journal’s Sourcing Summit last month, noting that “data in Black Swan events can be useful in certain circumstances.” But in general, “when looking at any sort of historical modeling, we have to be careful to look at it not as a prediction, but rather, as a suggestion.”
One of the biggest mistakes that brands are making right now is that “their focus is primarily on sell through as opposed to risk,” Zaidi said in an interview. As brands look to the holidays and 2022 as an opportunity to course-correct and recoup lost profits, they’re ordering deeper and making bigger wagers on higher volumes of product. But sell-through doesn’t always equate to success, Zaidi said, especially if deep discounting is how retailers are moving goods.
“One of the things I used to do in the past was pricing optimization for brands,” Zaidi said. “And one thing that surprised me because I was an outsider, and I didn’t know anything about fashion, was that net profitability was not a metric that they cared about.”
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Rather than produce less and sell more at full price, brands engaged in a race to the bottom when it came to manufacturing costs, chasing cheap goods and buying them at high volumes. Because the price of goods was so low, Zaidi said, they could afford to take hits to margin and still turn a profit.
Now, that’s changing. Manufacturing costs are increasing, and logistics issues have tacked on astronomical fees to the landed cost of goods. But instead of “looking at ways to sell more full price products, [brands are] still looking at ways to reduce cost,” he said.
Using consumer data correctly could help brands make better decisions. “I think the scope of data is in understanding where you’re overexposed and where there’s an opportunity,” Zaidi added. The optimal operational methodology for a fashion brand, in Zaidi’s opinion, would be to test and react, using an on-demand or near-demand model to manufacture goods according to consumer interest. That doesn’t necessarily mean producing only small batches—Zara operates under a similar model and often produces tens of thousands of units at a time of its most popular, tried-and-tested styles, he said.
Where consumers’ needs are especially hard to gauge, Zaidi also believes in postponing production, rather than making decisions further out. Keeping a portion of owned inventory at a raw material level will ultimately give brands more flexibility when they have greater insights into what consumers are looking for. The wait-and-see approach could mean missing out on sales if goods are late, but if brands overproduce now, they may be forced to discount products that have become increasingly expensive to manufacture and ship, increasing inventory liability in the long run.
The inevitable cycle of markdowns hasn’t just deterred shoppers from purchasing more goods at full price, it has chipped away at brand cachet, Zaidi said. He cited Apple as a brand that not only sells products at full price, but has convinced shoppers to sometimes go beyond their means to purchase the latest iPhone or tablet. Demand for these products remains high because consumers see them as valuable, not because they’re compelled by promotions or deals.
Looking at a company like Gap provides an opposing perspective, he said, noting that former CEO Mickey Drexler was able to revolutionize the brand during the 1990s by tapping into pop culture, elevating the in-store experience, and building a unique ethos. Now, Gap merchandise is perpetually on sale, and perception of the brand has “declined,” Zaidi said. “Discounting is the industry’s tool to handle risk. They discount [inventory] and get rid of it. But ultimately, this has other long-reaching effects on brand perception and value.”
Amazon founder Jeff Bezos once attributed his company’s success to meeting consumers’ desire for cheaper product, delivered faster. “I think that has been the prevailing view,” Zaidi said, “but I actually think that that’s maybe just one aspect of what they wanted.” Shoppers also want quality, reliability and a personalized selection of product that meets their needs and desires.
“Sometimes getting things cheaper and faster is the antithesis of those things, and there is a balance to be struck,” he added. “Everyone jumped on this cheaper, faster boat, and the macro effect of that is what we’re seeing right now.”