Get Ready for the Inventory Tsunami

July 01, 2020

Houston, we have an inventory problem.

There is a tsunami of inventory brewing in the global marketplace as new brands pop up every day, retail demand shrinks, supply chain buying habits don't adjust quick enough and up-cycling and recycling efforts are in their infancy.

Long before COVID rocked the world and pressed pause on brands shipping to retailers an inventory storm had been gaining steam. For years.

I'll address some of the problems and a few of the current trending solutions but they are still going to come up significantly short in mitigating how much goes into landfills.

The solutions beyond recycling and up-cycling are small batch production, cross category re-purposing and donations, which are explained more in detail below.

The main problem?

*Photo credit Business of Fashion

The problems creating the main problem?

Fashion brands are notoriously bad at forecasting which causes over production because they're buying against a financial plan instead of a bottoms up unit plan. Any brand purchasing finished goods overseas is usually buying blind, well before they have selling feedback. This plus a top down plan will almost always result in over-production.

Now you've got brands with too much inventory and not enough demand. Demand, or lack thereof points to multiple "why's" but in short it's either economic related or not having garnered enough demand from marketing and distribution, or a combination of both.

Brands also suffer from the bias that everything they make will sell at a high rate. They overproduce on the front end to get margin but don't take into account the margin hit they'll take to offload the excess on the back end.

Let's face it, we have way more brands in the market today than just a few years ago. Thanks to platforms like Shopify and the ability to print on demand for items like t-shirts and similar categories it's far easier to get up and running with minimal cost. This is a beautiful thing but it's also contributing to the outpacing of production over the demand on a global scale.

But the major contributor to the problem is the massive over-production by large brands, including the fast fashion retailers like H&M, Forever 21 and the list goes on.

I think there's a balance to this is a well because it's not cut and dry. Production drives jobs which puts food on people's tables. 

The reality is we're far less likely in the near to mid-term to slow the over-production because it means substantial improvements to forecasting and buying habits up front. In my 25 years I've met maybe two or three people who are actually good at this. It's hard.

As new brands pop up there are several focused on small batch production but until that becomes a norm in the business it's not going to move the needle for a long time.

What about closeout and off-price channels?

This has traditionally been the means for brands to offload excess and obsolete inventory but a few shifts have occurred in recent years. There simply are not enough off-price channels in the US to keep up with the amount of excess product available. This has driven these channels to become way more selective about what brands they carry. It's essentially buyers choice now because people are fine with shopping at TJ Maxx, Nordstrom Rack, Ross etc.

Demand is high in these stores and when you combine that with too much inventory they can pick and choose who they work with. If you're a newer brand with limited distribution or just small, which is the majority of brands, you're not going to get sold through a traditional off-price channel. All of the medium and large brands have taken up rack space because they're known in the market. There's a reason why TJ Maxx is the most profitable retailer in America.

How do we solve it?

The long game is to improve buying habits but as I mentioned that's incredibly tough and will take years. We have to accelerate the recycling and up-cycling capabilities and I have a feeling this will start to ramp up quickly in the next 2-3 years but it's still very early on in the game.

Brands more and more are thinking about sustainability leading to improved manufacturing techniques using less water and new materials from water bottles or other products that are sourced from previously used materials. Extending the life of product has finally become part of the sustainability question too.

There are two key possibilities that move beyond the current recycling and up-cycling efforts, which are mostly confined to being made into new clothing and accessories. These dramatically extend life on textile products.

First up, start repurposing textiles into products that can be used across multiple industries, not just the fashion space. Just look around at all of the products in your life that have fill, padding, insulation etc. etc. This is being done on a very small level but it's possible and in my opinion could chew up way more excess inventory than just recycling and up-cycling. 

Second, donate your excess product to organizations bringing relief to impoverished areas globally as well as helping micro-entrepreneurs in 3rd world places like Nigeria and Haiti. We work with an amazing organization that does just that. Soles4Souls.

Think about all of the returns of old season or excess product that could go straight to donation? This sounds crazy but do the math and see how likely you are to re-sell that product at a profit after all of the return handling costs and limited channels to off-load excess. Starts to make more sense to eliminate that cost and lighten your inventory load doesn't it.

This will be an ongoing topic of discussion so stay tuned and consider donating your excess inventory while taking steps to improve your inventory buys and while the market creates more opportunities for recycling across multiple product industries.

If you'd like to contribute to the conversation email me at aaron@fabreturns.com.






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