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Why Demand Planning Must Be More Than a Gamble

Overstocks—and overcorrections resulting in understocks—have plagued the apparel industry for decades, but the COVID-19 pandemic only made matters worse, forcing many companies to implement more markdowns, generate thinner margins and even gamble on packing and holding apparel for the future. But the time is now for retailers to not only make bigger bets on technology and treat demand planning as a science, but ensure that these technologies—and the people that use them—are all on the same page.

Despite all the recent talk about how demand planning is in need of improvement, many of the problems holding back an efficient solution stem from something as simple as a lack of alignment across the organization, whether it’s the people, the technology or the processes involved. And many retailers still haven’t yet integrated their disparate technologies.

“A lot of retailers that I’ve seen have a standalone PLM system and a standalone assortment planning system,” Charlie Holmes, global vice president of data-driven merchandising platform First Insight, said during a Texworld USA session. “They utilize First Insight, and they have a digital CRM system, and none of these solutions really speak to each other and that just creates inefficiencies.”

Elizabeth Shobert, vice president, digital strategy of data analytics platform StyleSage, noted in the panel that she is seeing more retailers—particularly digitally native brands—use pre-orders as a way to test a product’s market fit and gauge popularity through smaller buys.

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“I think that could be an interesting way for retailers to see whether they should shift that mix a little bit between the newness and that core piece,” Shobert said. “I think that one thing that digital brands are thriving in is this area of really bringing new products in all the time as they train the consumer to understand where to find new products or new additions to their website.”

The basics and comfort versus new fashion debate will continue to be top of mind for apparel retailers as they try to discern how to tilt their next batch of orders. But Shobert echoed the thoughts of many others within the industry, noting that the biggest consumer preference changes as lockdowns commenced included searches for sweatpants, masks and skincare products while moving away from products like dresses and heels.

During the pandemic, First Insight has conducted surveys through its retail customers, asking consumers what their expectations look like in terms of inventory and what they expect out of a brick-and-mortar store regardless of whether it’s open or closed. Of course, as more retailers turn their stores into mini fulfillment centers, it’s going to become the retailer’s job to localize the inventory based on shopper data, especially as demand changes seemingly by the minute.

“We’re really recommend to our customers to really focus your inventory on those styles that are going to be winners,” said Holmes. “Decrease your SKU count and get rid of things that might not resonate with the customers that they’re not finding value in, and increase your depth and those items that you know are going to be winners. You really want to be positioned on those items that you know that your customers want.”

Shobert highlighted Zara as a model that modern apparel retailers should emulate, not due to the typical acclaim it gets for its quick inventory turnarounds, but instead because it amplifies the concepts of localization as well as inventory visibility across all stores.

“I’ve always thought that Zara’s model of empowering store managers to make orders was really a key differentiating factor in their business model,” Shobert said. “Retailers can just give the tools to the local sales staff in those stores to help them build those relationships with consumers and fulfill orders at the store level.”

Although bolstering the store’s inventory capabilities and giving store staff company-wide visibility is crucial to improving demand forecasting, the heightened demand across e-commerce since the start of the pandemic means retailers must take sight of what can get product as quickly to the consumer as possible.

“To get into the digital mindset, it’s not just how you sell you product,” Holmes said. “I think you’ve got to think about how you develop, design and test the product digitally and have a whole digital ecosystem to be most effective.”