Industry

Fashion

Date

Insights

Disrupting the retail Fashion model

Recapturing profit through digital transformation

Tougher times ahead in retail fashion. 

The troubled fashion sector continues to struggle in the face of growing competition from e-commerce giants and a new breed of digital-first retail brands. To overcome the threat of these market challengers, many manufacturers and brands are reinventing their operating models by recentering their business on customer demand.

Digital technology is the business enabler supporting this dramatic shift, making it possible to produce the clothing and accessories customers want, when they want it.

Although digital transformation is a daunting prospect, the rewards are many for companies who have already devised a plan and implemented their solutions. With increased market responsiveness, it’s possible to achieve faster speed-to-market for greater competitiveness and adapt to new demands with agility.

 

Read our e-guide to find out more about:

  • The tougher times ahead in retail fashion
  • Standout market segments that are faring well
  • What it take to disrupt business as usual
  • Digital technology as a business enabler

Fill out the form to download the e-guide

Losses from unsold inventory

A first source of operating margin pressure attributable to miscalculated fashion forecasts is overstock. A report by Coresight Research found that markdowns cost non-grocery retailers in the United States $300 billion—12% of total sales—in lost revenue in 2018. According to survey respondents, excessive markdowns and incorrect merchandising decisions were to blame for most major inventory management issues, especially “dead stock” that results in a write-off. The most high-profile example of excess inventory in recent memory is Hennes & Mauritz, which ended Q1 2018 with $4.3 billion in unsold merchandise following the company’s first quarterly drop in sales. Aggressive expansion had left the fashion retailer with a global network of 4,700 stores. Between 2014 and 2018, inventory levels for its massive store footprint doubled due to designs out of step with style trends and consumer demand.

Dead cash and debt

Overproduction and overstock are two major causes of waste. By lean manufacturing standards, overproduction is considered the worst of the seven main sources of waste because it creates unnecessary inventories, conceals quality problems and generates effort. Increased production costs additionally have an unfavorable impact on operating margin. Industry professionals refer to these miscalculated expenses as “dead cash” – funds that are not available to reinvest in operations or pay bills. Because insufficient working capital limits operating flexibilities, excess inventory is also a drag on business productivity. In some cases overproduction and overstock even lead to debt, leaving many retailers’ cash positions much weaker than is advisable.