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These Inventory Mistakes Claim $300 Billion in Revenue Lost to Markdowns

Apparel retailers that actively improve their inventory management and avoid key mistakes stand to shrink their share of the $300 billion in revenue the industry loses to markdowns every year, according to a new report.

CoreSight Research partnered with Celect, a provider of retail inventory optimization analytics, to survey 200 retail decision makers for their report, Revealing the Hidden Costs of Poor Inventory Management, which noted that the value of revenue lost to profit-draining markdowns is equivalent to 12 percent of the total U.S. retail sales, excluding grocery.

Just 60 percent of fashion products are sold at full price, in line with the overall retail trend, the companies said, and a mere 15 percent of all retailers claim to sell nearly all (at least 90 percent) of their merchandise at original asking price. Retailers that sell through e-commerce and brick-and-mortar were less likely than average to move merchandise at full price, the report said. Of those selling the vast majority (minimum of 90 percent) of products at MSRP, just 6.3 percent claimed to do so, lower than the 15 percent average. Less than one-third (28.5 percent) of multichannel merchants move at least 70 percent of products at full prices, well below the industry average 49.5 percent.

CoreSight and Celect believe these findings highlight the “complexity” of operating an omnichannel business that presents a greater number of variables influencing sales velocity. Managing the intricacies of cross-channel retail hinders merchants from executing on productive decisions, which “adds urgency to the need for optimized inventory management,” the report said.

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Any one of a number of factors can lead to planned markdowns, from weather events to changing trends and new, unforeseen customer behaviors. Plus, many retailers feel they must keep up with their peers discounting maneuvers given customers’ sensitivity to cost. But the report found that 53 percent of unplanned markdowns stem from missteps in inventory management. Buying too much or too little product remains a chronic problem, as 43 percent reported overbuying while 36 percent underbuy their inventory. However, retailers that rely on unsophisticated spreadsheets or rudimentary analytics tools and input their data manually were more likely than average to struggle with inventory optimization, according to the report.

Many tech vendors offer products that can help retailers—especially those in fashion susceptible to rapid changes in trend popularity—use robust analytics to better craft promotions, right-size product buys and determine the best product investments. Most survey respondents claimed to be aware of analytics options on the market, as just 14 percent said they’re unfamiliar with retail-specific analytics tools.

“This suggests that there is a significant opportunity to increase awareness of the benefits that such tools can provide in terms of helping retailers make smarter merchandising decisions,” the report said.