How should apparel retailers best go about managing stock levels? Jonathan Wright takes a closer look at our work with Knowledge Partner Edited in this area
FOR RETAILERS IN the apparel sector, the idea of shifting stock at full price is especially important. Retailers that sell the right styles in the right colours and at the right price point not only maintain margins, but the turnover of stock and a sense of new items arriving is important in generating excitement, retail pizazz.
Nevertheless, there will inevitably be times when clothes don’t, for whatever reason, sell as quickly as hoped. At this point, it becomes important to shift stock efficiently and, ideally, without taking too much of a hit on price. This requires slick merchandising, the ability to price realistically and promote discounted items without making these items appear tatty, undesirable.
For these reasons, since we began compiling the IRUK 500, we have worked with Knowledge Partner Edited to analyse how well clothing retailers manage stock. The research revolves around measuring seven metrics: size of offering, rate of newness, level of discounting, rate of discounting, sell-through rate, sell-through time and replenishment.
While noting there are exceptions – H&M, for example, puts an onus on being the fastest in fast fashion – Katie Smith, senior fashion & retail market analyst at Edited notes: “Those metrics, when balanced, suggest healthy retailing for a retailer working to a pretty standard mass-market model.”
Perhaps surprisingly given the widespread perception the retailer is struggling in apparel, Marks & Spencer performs best here. The company is able to replenish 22% of its offering. It doesn’t offer big discounts, but instead offers a healthy amount of lower-level discounts to entice consumers to spend. It could, however, do better on rates of newness, with items taking an average of 112 days to sell out. Ideally, this sell-through rate should probably be closer to 80 or 90 days.
“Marks & Spencer’s apparel has certainly been out at sea for the last four or five years, while the food category has run streaks ahead,” says Smith, “but it looks like battle scars may have had a chance to heal. They’ve curbed the big discounts, those dramatic reductions which are a tell-tale sign to a consumer that the retailer is struggling. That’s critical to help build the loyalty M&S lost with its apparel shoppers. To score trust, savvy shoppers in today’s market need to believe that the first price is the right price.”
Next is the second-strongest performer, up from 22nd last year. The improvement is again partly down to getting discounting under control. The company offers a wider range than Marks & Spencer and items take a mere 59 days to sell through. However, replenishment rates at Next are lower than at M&S, and the retailer’s emphasis on fast sell-through and new products could mean it’s not paying enough attention to meeting consumer demand for popular items.
Other retailers that performed well in this facet of the Merchandising Performance Dimension included New Look, which discounts just 3% of its stock by more than 60%; TK Maxx for having such a fast turnover that 47% of its stock was new in the previous month and its offering takes an average of just 19 days to sell out; and Zara, which again has a low rate of discounting and manages to sell most items at full price and within 65 days.
The perils of discounting
As Katie Smith has already hinted, our research here reveals much about how effectively retailers are implementing mass-market strategies, but what about those that didn’t rate so highly? What can we learn? Sports Direct, for example, competes on price and discounts aggressively, with 12% of its offering reduced by 60% or more, facilitated by the company’s ownership of brands Lonsdale, Slazenger and Kangol.
This approach, at a time when there’s a move towards ‘athleisure’ (wearing clothing designed for workouts and other athletic activities in other settings, such as at work or on social occasions), may cause problems in the longer term.
“Unless Sports Direct can bolster its relationships with brands like Nike, Under Armour and adidas, the retailer doesn’t hold enough of those high-kudos brands which are in athleisure boom, meaning the retailer won’t grow at athleisure’s pace,” says Smith. “Relationships with those brands aren’t going to strengthen if the retailer sustains its discounting tactics.”
The luxury market
At the other end of the scale, what about retailers in the luxury market, where discounting is perceived as damaging both the retailer’s brand image and its relationship with suppliers? Even allowing for the fact that many big-ticket items sell out quickly because stock levels are low, there will be times when items stubbornly refuse to shift.
“For many, outlet stores or flash sales are a better solution to clearing stock,” says Smith. “Just 20% of the UK luxury market is reduced, by a relatively modest average amount, 27% [figure from 12 April 2016]. Compare that to the mass market, which prioritises newness and price competitiveness – 32.5% of the mass market is currently discounted, by an average of 36%.
Finally, remember discounting is at least in part about perception. “The luxury market also differs greatly in the way retailers discuss those discounts,” adds Smith. “Just 9% of products currently discounted are actually flagged up as reduced by the retailer. The other 11% are simply downward price adjustments that our software detects, but the consumer wouldn’t necessarily have red sales banners flashing at them! The mass market goes the other way: it declares 34% of products to be reduced, whereas we’ve only seen 32.5% have a price altered.”
This softly softly approach, we would emphasise, would be unlikely to work in other sectors where value is more important than customers perceiving items as exclusive. We will be continuing and deepening our research in this area.