Omnichannel's Unique Challenges and Opportunities for Fashion Retailers

1/12/2015
It's safe to say that fashion is one of the most dynamic environments in the retail industry. The fluidity, turnover rate and unimaginable variety in inventory present a wide array of challenges in the omnichannel world we live in today. Just as styles and trends have changed and evolved over time, so too have consumer habits and expectations.

Consumers are constantly connected and regularly exercise the ability to shop, review and compare anywhere and anytime. Retailers must adapt to this landscape and incorporate a new model that integrates online and offline channels or risk sending customers straight to their competitors.

Unfortunately, integration is not a simple task. In fact, only one-third of retailers have invested in some level of omnichannel capabilities. So what are the barriers standing in the way of the transition to omnichannel retailing for fashion retailers?

Multi- vs. omnichannel retailing: of framing the difference
A majority of retailers are stuck in some kind of outdated multichannel model, insufficient in today's omnichannel retailing reality. At first glance, multichannel and omnichannel retailing seem one and the same, but they are altogether different. Multichannel retailing means that retailers are selling through more than one channel, such as brick-and-mortar stores, e-commerce, catalogues and kiosks. Each channel is managed separately, with its own demand forecasts, promotions and even price adjustments. These traditional methods produce a tremendous amount of out-of-stocks, carrying costs, lost sales, decreased customer service levels and unnecessary markdowns every year.

Omnichannel retailing, on the other hand, is much more comprehensive. This model has evolved with the introduction of predictive analytics technology, which has allowed retailers to gather more data about their supply chains and make better planning and inventory decisions. These decisions are made by taking the entire business into account, looking at trends, forecasts and how each piece of the business is interrelated. In a true omnichannel environment, the entire retail organization works in concert – from merchandise planning to assortment planning, purchasing, allocation, replenishment, promotions, price optimization and event management. Everything is calculated on a global level and only then broken down into the various functions of the retail process down to the store/SKU level. This significantly reduces inventory costs while increasing sales and customer service levels for each channel to maximize gross margin.

Because of their unique challenges, it is of particular importance for fashion retailers to integrate an omnichannel model into their business and in return experience the significant benefits that come with it.

Quick turnover of seasonal inventory
Many products in fashion are seasonal and have a short lifespan. With the change of seasons, retailers try to empty store inventory quickly while still selling products at full price. But here's the catch: fashion products' reaction to price changes and promotions will vary. While demand for some

products immediately increases with a noticeable discount, others will only move when they are set at an optimal price. A multichannel retail model is unable to react to these intricacies and can't forecast optimal pricing and markdowns while taking other retail functions into account. In fashion,  retailers need a model that is attuned to optimal markdown strategies that can vary vastly from item to item. Without a true omnichannel approach, retailers will never be able to forecast these pricing strategies for seasonal inventory; instead they will be left with fringe sizes and styles, forcing them to get rid of dead inventory.

Introduction of new fashion items with no history of sales and demand
Because of the constantly evolving trends in the fashion vertical, retailers in this industry consistently release new items unlike anything sold before. Demand changes by the season, year and location, and is also affected by promotions and rare events such as the Olympics or World Cup. These extenuating circumstances leave retailers void of relevant historical data to help them accurately plan for allocation, assortment, pricing and replenishment of new products.

Even for established products, traditional forecasting methods can be very misleading. A smart predictive analytics solution can build an accurate profile for these items by analyzing similar products/category behavior, seasonality, demand and many other factors. True demand forecasts have to take into account the effect of past promotions, seasonality, rare events, new product launches, product cannibalization and dozens of other influencing factors that mask real demand.

Often, a retailer working in a multichannel environment leaves it to the marketing team to set up promotions, while the supply chain team sends out replenishment/purchase orders without taking promotional events into the equation. This means retailers find themselves quickly selling off inventory they ordered for a regular week of sale at a reduced price, while the promotions generate additional demand that they are incapable of fulfilling. Therefore, retailers actually end up losing on promotions. A truly integrated predictive analytics approach would avoid this all-too-common scenario.

Huge variety of styles, sizes and colors
Fashion retailers also have more complicated decisions in terms of assortment and allocation of merchandise. For example, just a single jacket can come in seven sizes and three colors, essentially creating 21 unique SKUs. On an even larger scale, if a retailer has 100 stores and 500 styles in a few colors and several sizes, they need to be able to make important decisions based on millions of possible combinations on a constant basis in an ever-changing environment. But fashion retailers must also consider that many SKUs sell better in some locations than others. So, how do fashion retailers account for those inconsistencies across location and accurately distribute inventory and assortment in such a dynamic environment?

Without an integrated solution that works in real time, it is impossible to accurately calculate demand, manage inventory, assortment, prices, promotions and purchase orders effectively. Multichannel retailing solutions using traditional statistical methods produce misleading demand forecasts, and retailers using a siloed approach are guaranteed to lose out on sales while increasing costs.

The solution is an inter-store inventory and assortment balancing system, which can track demand in real time and show retailers where inventory should be moved, proactively, in order for it to fulfill demand at an optimal price.  Moreover the system should take into account dozens of factors when determining which transfers are profitable including transportation costs, assortment rules, store shelf capacities, display minimums, and much more. This is a great tool to help fashion retailers get rid of seasonal inventory by the end of season without unnecessary markdowns through inter-store inventory and assortment balancing.

It's time to take an omnichannel approach
Multichannel retail is a thing of the past, but the majority of retailers are still using this antiquated approach. Now is the time to adapt, especially for the fashion and apparel industry. Until then, retailers will remain one step behind their customers — and competitors — that have already caught on to the omnichannel model.


Yan Krupnik is business development manager for Retalon. Since 2002 Retalon has optimized pricing, inventory management, merchandising, planning, and marketing operations for retail organizations in a variety of industries. 


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