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Fashion Has a $230 Billion Inventory Problem. Here’s What it Can Do.

Fashion has long struggled to get its arms around inventory, and Covid-19 has exacerbated these challenges, with tons of product remaining unsold even when stores started reopening in May. According to retail data science company PreciseTarget, retailers are sitting on as much as $230 billion in apparel and footwear with no place to go.

Even with the introduction of supply chain and fulfillment solutions designed to give retailers full visibility of their inventory and streamline online and offline channels, getting rid of excess products has been challenging for many merchants, due to today’s sprawling apparel distribution network.

“It’s an immense logistical challenge to retrieve merchandise that is scattered throughout a geographically dispersed store network, particularly if the in-store staff has been furloughed,” said Rob McGovern, CEO of PreciseTarget. “Brick-and-mortar retailers with a weak e-commerce infrastructure really face an uphill battle. A single online order could request a pair of jeans that’s in the Orlando store with a blouse in San Diego, and a belt in Boston? The fulfillment burden is significant.”

It also doesn’t help matters much that unsold summer items are progressively less valuable as the fall season sets in.

McGovern said that even off-price chains that typically thrive on others’ excess merchandise such as T.J. Maxx and Burlington will be affected as products that land in those stores will have already followed a declining margin curve at the original, first-market retailers.

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“Think about the situation in terms of a stadium filled with people, all trying to exit through one door,” McGovern said. “The most effective way to efficiently move this inventory, even at deep discounts, is to use data to drive DTC sales during this period of disruption to physical retail outlets.”

As retailers struggle to figure out the back end, the glut of merchandise sitting in warehouses and stores is likely to force these merchants to slash prices at a higher pace than even they are used to, leading to what could be a highly promotional holiday season.

In an August survey, RetailMeNot said it expects more retailers to use flash sales to promote deep discounts to create the fear-of-missing-out mindset to grab market share. The digital savings firm also expects that gift-giving will be especially important for those planning treats for children.

But with deep discounts already playing such a major role in holiday seasons past and becoming more of the norm for department stores throughout the year, these retailers must find a way to effectively drop prices without only attracting shoppers who are strictly looking for deals and often lack long-term loyalty qualities.

Data from retail market data analysis firm Edited revealed that online discounts this spring reached Black Friday levels from 2019. Markdowns throughout the month of May averaged 44 percent, when retailers were frantically trying to sell off the inventory that been stuck on their premises when stores closed.

Essentially, sellers should think of discounting as a cost of acquisition for strategic customers, rather than a reduction in product margin.

PreciseTarget, a platform that gathers shopper data to helps apparel retailers and brands target, acquire and understand their highest-value customers, recommends brands use three types of targeting campaigns that incorporate consumer taste to get a better read on which products are appropriate to discount.

The first type of campaign targets “brand over-indexers,” who are the typical brand loyalists or “brand fans” who continue to stand out despite loyalty being less of a factor in the deep discounting environment.

The second campaign, “product taste propensities,” targets shoppers whose tastes match the attributes of apparel products and attract consumers who like products within specific price classes. For example, these shoppers would gravitate to running shoes largely if they were low-priced or women’s outwear categories if they are high-priced. The goal is for retailers to attract consumers who like the type of products they sell within specific price tiers.

The third and final campaign targets the “on-sale buyers,” who as the name states, exclusively buy products on sale. PreciseTarget recommends retailers use two combined data sets for on-sale merchandise and those who score highly for products on sale. These data sets are ideal for the deep discounts that dominated the second half of the year, it added.