What is the assortment problem?
Big retailers are often struggling to cope with large stockpiles of furniture, apparel and workout equipment.
Solving this holds big business, environmental, reputational and compliance gains for the companies.
Product assortment trade-offs
Fashion retailers have to do trade-offs between how much companies keep in stock compared what they sell. A close stock-to-sell ratio indicates efficiency but if it's too close there are greater chances of stockouts and lost sales. Accurate demand prediction will greatly benefit the business and our environment. Accurately satisfying consumer demand will produce customer satisfaction and regulatory compliance.
“Just-in-time” vs “Just-in-case”
Due to the high cost of missing sales, there is a shift from “just-in-time” inventory management to a “just-in-case” strategy where companies stock more than necessary to avoid missing sales.
Business problem
“Just-in-case” generates a 100b business problem in the EU. Different sources indicate that often companies struggle with about 20% excess being discarded and 40% of the fashion merchandise being sold with markdown price. In the EU market alone this problem accounts for 100b euros.
Environmental problem
In 2018 the global fashion industry produced about 4% of the global GHG emissions. The current annual growth rate of about 2.8% per year falls outside of the 1.5-degree pathway.
Overproduction is a key lever
Reduced overproduction is a key lever that could reduce emissions. Some 40% of garments are currently sold at a markdown and 20% are discarded. A 10 p.p reduction in industrywide overproduction from 20% to 10%, through technology investment, to support demand forecasting and stock management or regulatory incentives, will help us stay on the 1.5-degree pathway.
Reputation problem
Know your customer: For 3-in-10 consumers, ethical issues are a key decision-making criterion in what clothes they buy. When it comes to taking personal action 56% of consumers say that if a clothing brand was associated with the environmental pollution in its operations they won’t buy.
Technology and data aid
The category matters. It is often the case where retailers have their stock depleted in specific categories or models and score excess assortment in others. The question is where to intervene.
Probah
Probah offers to incorporate consumer feedback in the product development process to de-risk decisions related to product, price, promotion and placement.
