Triaging Your Inventory

The webinar featured Amanda Astrologo and Rob Oglesby from Parker Avery, joined by Joe Skorupa, long-time RIS News editor and industry-recognized subject matter expert on all things retail and CPG.

When introducing the webinar, there was a lot of talk about when shelter-in-place orders would be lifted and when the economy would re-open. At that moment in time, we did not try to guess the timeframe, nor were we able to ensure when ‘Day 1’ would be. But we did know we would leave our homes again. We would come out from behind our screens and webcams. We would shop again. Consumers would be back. And we as an industry needed to be prepared.

Why was focus on inventory so important, especially for retailers that were shut down? We’d venture to say that in February, even early March of 2020, few of us would have forecasted what happened so suddenly by mid-March. We had plans for the season, we were hopeful for a strong 2020, and had no idea of the coming pandemic and its impact on the world. Post-March, many retailers’ only focus was ecommerce fulfillment and any omnichannel shopping options they may have had. Otherwise, stores were dark, inventory is aging quickly – and unlike fine wine, aged inventory does not get better with age.

For our Reconstructing Retail inventory focus, we introduced the “triage” concept with 3 stages:

• Level 1: Critical – what do absolutely need to address right now
• Level 2: Urgent – what are the next things that will need to be managed
• Level 3: Recovery – what’s next and how can we balance further stabilization with future opportunities

First and foremost, continue to focus on your customers and community. Your reward will be consumer loyalty and trust. It’s going to be the little things you do today that build brand loyalty and trust. People will remember. As we discuss gluts of inventory, keep in mind that donations are one way to potentially ease things. Remember this doesn’t have to be in total or at once. We are all being impacted at different times and climates. Help those around you where you can; this includes your associates.

It’s important to focus on inventory, especially excess goods, immediately. Major milestones represent points in time where decisions must be made. Identify the criteria for the decision before you get there…so you can make the call without hesitation (and put the plan into action). Identify your options: markdown, donate, clearance center, outlets, pack up for next season. What can live on as potentially another ‘collection’ even if you didn’t intend it to? Be flexible–think differently.

You have inventory everywhere: stores, DCs, factories, and in transit. Focusing on the product you have on hand is most critical now. Think of every location as a distribution center. This may require changes to how your systems work—if you have BOPIS, leverage it. Curbside pickup may not be an option, so consider going the last mile and delivering to the customer. If you already ship from store—maximize it.

That means resources in the field and a great opportunity to get associates back to work. While you may not have enough demand to justify bringing them all back, you’ll need to at least have teams in place; look to your DMs and store managers to form the first group. You may have to let local authorities know your intentions. Landlords too, especially if your stores are in enclosed malls. By limiting the number of people, you can ensure social distancing is in place.

One other consideration…most didn’t identify inventory accuracy as a challenge in our survey. Stores notoriously have poor accuracy, and for the time being, they are DCs—so you want to make sure orders can be filled from your stores. Now may be the time to conduct a physical inventory in the stores to support your new operating model.

Start by evaluating your next assortments and what’s in flight. Evaluate seasonality—especially what is needed and where. Pull back on “all store” buys – give yourself flexibility. Determine where you can buy smaller quantities and more frequently. Review purchase orders in the factory and in transit and adjust accordingly.

Now is the time to partner closely with your trading community. Know your vendors and their vendors. Understand your levels of risk. Push some limits. Remember we’re all in this together and in that spirit, everything should be on the table: negotiate costs, payment terms, and staggered deliveries. If you’re having issues with factories in one country, perhaps it’s not the factory, but the raw materials that are sourced from another. Transparency has become more important in today’s marketplace due to heightened social awareness, now we see the value in limiting supply chain disruption.

Also, remember your internal partners. Your peers are always an asset. It’s easy to get stuck in ‘this is how we did it’ without realizing in the immediate environment that part of the race either hasn’t started, isn’t being run—or maybe it’s finished (like spring product for some). Be thoughtful about your decisions and be a partner.

Triage Level 2 is a bit farther into the future, yet still with a lot of unknowns and driven by knowledge. While your systems may not be perfect, chances are you have the data you need somewhere—it’s a matter of being able to mine it and use it.

If you’ve not already done so, set up a virtual “command and control” center. You need to know the current and detailed state of your purchase orders that are still in the factory: when will they exit, and are they still going to the right place? Can you defer any shipments? Also, what’s in transit? Literally to the container level. Where is it going, and what will you do with it when you get it there? You may need to create additional “buffers” in your supply chain, perhaps with auxiliary storage. When space is critical in your DCs, you need to prioritize by need.

Your systems may be part of the challenge. If you operate pure flow-through DCs, find ways to adjust the operations in the short term by executing things like pack-and-hold. While deep technology changes aren’t realistic, creative ways to use what you have are paramount. Make sure you are being efficient with inventory movements, given the operating limitations that will continue to exist in the “mid-future.”

It’s time to take a holistic look at your buying and planning cycles and think small and agile. Some of you have things for fall en route. Do you need to change distribution, flow to different stores, or flow just to ecommerce sites? Where you can, buy smaller and more often. Buying “tight” and maximizing profitable sell-through is always a balance, but it comes down to comfort level with risks. Is it “ok” to run out or run leaner? The answer in the short term for fashion: yes. Be ready to chase but remember Triage Level 2 and stay close to your partners.

During this time, you likely have discovered things that you do well and things you don’t. When it comes to inventory, there are always challenges of visibility and data. Teams need both, and they need it easily accessible. If you need to be more flexible, you can’t spend hours pulling data and scenarios. Evaluate what you have and where you have bottlenecks/challenges at each of these phases. Re-prioritize where you can. Remember, it’s not all about technology and high spend. Look at your business processes and make changes there first. It may help alleviate short-term pain.

Back in January, many of you were probably worried about your POs for the upcoming fall and holiday season. With China in lockdown, supply was uncertain. Fast forward to today, and the issue is demand for the product you DO have. The more seasonal it is, the more risk you’ve undertaken.

While it may be hard to consider it now—given all you’re dealing with “in the moment,” this should be a wake-up call. You can emerge stronger from this situation by addressing some key elements in sourcing and product development. Think differently about your key sourcing drivers. Speed to market is perhaps even more valuable than the lowest cost. The closer you are, the more flexible you can be to react to changes and not miss an opportunity. Evaluate your sources and look for opportunities to shorten the “first mile”. In addition, your product development practices can be modified to further benefit speed to market. By beginning with raw materials and designing “into them,” you take more control of your supply chain, and as a result, gain valuable time to make decisions.

There are strategic initiatives born out of crises. While we hope we’ll never see anything like this again in our lifetimes, it’s teaching us some valuable lessons. These are the kinds of changes that will provide lasting benefits in your business well after we recover from this current situation.

Nobody saw this coming. We all thought it was an “isolated problem” in China just a few months ago. Now it’s global—and we know there are parts of the world that are in various stages of the virus curve. The biggest unknown is when: when will we be able to get back to “normal?” What will “normal” even look like? We’re pretty sure it will come in waves…both at an international level and within the countries we operate.

As things change daily, so must the decisions we make. Visibility to your inventory, across your supply chain, and with partners will enable you to understand what’s possible and act in the most efficient manner. Stay small and fluid. Success will be dictated by your ability to remain flexible – both in planning and in how you operate.

Our webinar closed with summarizing a few key points.

• Continue to take care of your customers and associates; a focus on both will pay long-term dividends
• You may be able to make the best of your inventory productivity and margins in the short term, but they will likely still be far below your original projections of just a couple of months ago
• Think outside the box in connecting with your customers – but be careful to focus on the overall relationship and experience vs. any short-term selling push
• Be the partner you want to see in others
• Keep a full lifecycle perspective in mind

We talked a lot about responding to the crisis and looking for ways to do things differently. But don’t forget – many fundamentals still matter, like product, assortment, pricing lifecycle, and inventory productivity. Getting back to where we were may seem like a fantasy, but, as with other types of disruptions, there is also an opportunity to get ahead by looking at your challenges and opportunities differently. Reconstructing retail need not be limited by what was before, and can bring newer, better ways of operating.

The following is a compilation of questions asked by the webinar participants.

Question 1

How do you balance the profitability of goods sitting in the closed stores that are also being sold in e-commerce now? Basically, these goods would be at deep discounts in e-commerce by the time the stores open.

Answer

Obviously getting stores reopened is key and utilizing capabilities such as BOPIS and ship from store, but in situations like this normal markdown cadences should be evaluated. Look at where your inventory is and determine a plan for both. Do you need to mark down the e-commerce inventory? If you are true omni and the customer can get the goods from anywhere, if it’s a markdown on the web it’s a markdown in the stores regardless if they are open or not. It just depends on where it ships from. So, determine if you can take the critical steps to open your inventory up to the entire network first, but if you can’t, always be flexible with your pricing options.

Question 2

What are you hearing from your clients about discounting for purposes of converting inventory mix to fresh?

Answer

I think most if not all retailers are evaluating markdowns and aging inventory at the moment. Generally, when planning assortments, you want a constant flow of fresh goods to keep consumers coming back and having repeat traffic. Clients that have an e-commerce business should be concentrating on this metric as that is how the consumer is mostly shopping these days. Keeping the online assortment updated will also be increasingly important to making decisions on brick and mortar when they start to open. It will give you a view of the categories people are shopping vs. not without having to wait and see. Don’t shut off the flow of goods but do consider limiting the allocation to online and/or key distribution stores.

Question 3

In China it seems that the spring season was eviscerated, and when retail came back online consumers moved on to summer goods. Do you anticipate a similar leapfrogging of seasons, and consumers not really buying summer goods and opting to wait for fall goods as buy now wear now?

Answer

There is no doubt there will be “season skipping” across many areas of the country, but this will obviously be regionalized. It will also depend on the way the pandemic plays out and the “opening” by country and state. Creativity in the management of the portfolio will be essential to long-term success. Get creative with assortments and consider movement or redirection of goods to where they will sell the longest.

Question 4

Do you think customers will still want to buy spring goods come May? What are your thoughts in terms of merging seasonality to make the product last longer?

Answer

I’d say, they’ll buy “late” — but not at full price. Consumers will expect the markdown cadence to be in full force. Accelerating that may be a good option as well (assuming you can get to the merchandise via BOPIS, etc.). As far as merging seasons is concerned, perhaps it’s possible. Again, I see a broader approach of reviewing each style in the portfolio for its attributes and making decisions on the best course of action (liquidate or “keep”). Certainly not a one-size-fits-all decision.

Question 5

What about customer returns?

Answer

This is a tricky subject, especially with stores operating in a modified format — and the fear of contamination of the merchandise itself. Ideally, the return would be shipped to a DC where it can be properly (and safely) triaged. The biggest challenge will be regulating the flow of goods—you don’t want a tidal wave when this opens back up. So, encourage your customers to “return early” — and as easily as you can make that happen.

Question 6

When jobs are at risk, wouldn’t people cut down spending on non-essential things? Lockdowns really teach us how low our actual needs are. How do retailers plan on non-essential things?

Answer

Likely there will be a slow start to non-essential goods as people evaluate their positions coming out of this time of uncertainty. Retailers should continue to be flexible with both the number of goods they are bringing in and the pricing. Most consumers will be looking for “the deal” especially on the highly seasonal merchandise. As new goods begin to flow in, it will be more about the right amount and being smarter with the allocation and placement of those goods. Keep things fresh where you can and give them a reason to buy other than price.

Question 7

How much recent (sales) data will be important/useful for forecasting in the future. A pandemic seems to be a very rare event. How we can best use this data?

Answer

Without a doubt, the sales we are seeing now are anomalies. And as such, will require some very creative approaches to make sense of them. Especially since the pandemic will continue to “ripple” throughout the marketplace as communities across the globe emerge at different times and different paces. It’s like we have a myriad of “micro seasons” occurring. A company that has a highly adaptable forecasting tool will be able to leverage this information in the short term to improve decision-making on pricing, product flow, and even operational requirements. In the long term? Not as relevant—but we will be better equipped to act faster and more decisively if we are faced with something similar in the future.

Question 8

Have you heard from any of your clients in terms of providing masks, for instance, to their employees once back in business?

Answer

In the ‘interim’ normal, it should be a judgment call as to how necessary they are. If the store is limited to only employees executing BOPIS activities, they may be able to work around not needing them, especially with limited staffing. I think the best approach is to offer them to all — and require them if there will be customer interaction.

Question 9

Do you have a recommendation for furloughed boots on the ground planners/buyers as to where they should even start when they return to the office as it relates to inventory? It could all seem so overwhelming with weeks/months away from the business.

Answer

Now is the time to assess the portfolio for today AND the next season. Sell-through is not happening at the rate it was projected and bought for. Liquidating it all at massive discounts is not an ideal decision either, especially for the styles that have more “fashion longevity.” As planners and buyers return to the office, always keep the basic fundamentals in mind. You won’t be able to solve it all at once—nor should you. Prioritize, partner, and communicate. Peel the onion so to speak. What are your biggest bogeys? What can you impact now vs. later? What vendors work with more flexibility than others? Remember nothing will be perfect but focus and prioritization will be your best assets and strategies. We’ll be talking about ways to successfully emerge your organization out of the pandemic environment and position them for the new world in our next webinar: Mobilizing & Sustaining a Resilient Organization.

Question 10

Do you expect companies to diversify their sourcing to become less dependent on China?

Answer

The simple answer is yes. And it’s beyond just the dependence on China. There are two key takeaways here. One is speed to market versus just lowest cost — there is so much supply tied up in long lead-time supply chains that is proving nearly impossible to manage today. The second is about transparency all the way back to the raw materials. Before companies may not have been concerned with where those were sourced. Now it matters — from the perspective of control as well as social compliance. This is not an easy change to make — and the longer you wait to make your moves, the more difficult it will be to establish the new approach.

Question 11

What are you hearing about how retailers are managing payment terms with vendors, especially during the downtime & in the face of significant cancellations?

Answer

This one is tricky. We’ve heard of payment terms being evaluated but not widespread as of yet. This should be a last resort. Once you move payment terms out, it will be harder to get them back or make additional changes.