Maximizing Profit in Omnichannel: Where Clothing Retailers Can Adapt to Today’s Challenges
Retailers are not exactly experiencing the best conditions ever—particularly fashion retailers. Depleted revenue, compressed margins, and an overburdened fulfillment infrastructure that wasn’t prepared for spikes in online volume reaching 40-60% of total sales are just the tip of the iceberg. Some are seeing up to 8 percentage points of margin loss on a digital order.
Needless to say, the immediate future of fashion retailing may be a bumpy ride.
It was logical to assume sales figures would rebound as vaccinated shoppers grew more comfortable venturing back to the local mall. But that early optimism was quickly tempered by a slew of emerging factors—port shutdowns in China and other nagging supply chain woes, a global labor shortage, and rising inflation—capped off by rippling effects from the Ukraine conflict. The result is a paradox: clothing and clothing accessory sales are on a significant rebound—up 124% from the pandemic depths of March 2020 and 14% above March 2019 levels. Yet record levels of inflation may eventually temper customer buying, especially for discretionary items such as clothing.
In light of all these lingering uncertainties, retailers must be as nimble as ever in their forecasting, planning, and inventory management. Omnichannel is here to stay; that is certain. Even when life feels nearly back to the “old normal,” retailing challenges will continue to evolve. And therein lies the balancing act—successfully coordinating the digital front end with fulfillment from physical inventory. For example, 40% of retail winners have already indicated that “too many inventory transfers between selling locations” was a top inventory management challenge.
So Now What?
Retailers must anticipate and respond to customer demand and market shifts, even though it has become more complicated. It’s not surprising that fewer than 10% of retailers can do this today—but it does explain why 57% of retailers have listed improving demand forecasting a top focus area.
But that is only the start as retailers must reconfigure their assortments for their stores and channels. In an omnichannel environment, the brick-and-mortar store represents a showroom and experience center, along with a convenient sales, fulfillment, and return location. Stores in isolation do not maximize the brand, revenue, or margins. So, even though fringe sizes may have a 10-15% greater demand online, some of this inventory should be carried at stores for fulfillment, even if it isn’t on display.
That same type of diligence must be carried through other inventory management processes. Allocation and pricing teams must consider omnichannel demand when making inventory and pricing decisions. How much is going to be picked up from the store, shipped from store, or even returned to the store? The demand is there, whether you plan for it or not. If you don’t plan for it, the following situation can occur.
And finally, fulfillment. Improving the upstream processes will increase profitability through markdown reductions, sell-through gains, and lower shipping costs. Yet profitable fulfillment decisions are needed. Traditionally, these focus only on cost, and not opportunity. Imagine a customer purchases running shoes online for $100 and requests 2-day shipping.
You have two stores (Store A and Store B) that can fulfill the order, and the shoes are priced at $100 at both locations.
Both stores can meet the fulfillment request timeline.
But at Store B, it will cost you $3 more to ship.
Decision made. Go with the lower cost at Store A.
But that quick decision ignores the extended opportunity of those shoes. What if you knew that to sell through all your inventory at Store A would require an average discount of 20%, but Store B would require a discount of 40%. Now Store B is a significantly better option.
Increasing profitability for omnichannel requires rethinking and retooling merchandising and supply chain operations. The previous examples each improve margins through better inventory utilization and lowered shipping costs. However, there is a cascading effect. Each improvement builds upon one another from planning, to allocation, to pricing, and thru fulfillment, starting over again at planning, creating positive momentum with each cycle.
This is proof.
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Related Read:
Retailers: This is the Truth about True Demand
Mark Schwans
Mark Schwans leads antuit.ai’s product and content marketing for Zebra. Mark has more than 20+ years of experience creating value and change for the retail, CPG, and software industry.
He has held a variety of leadership roles across solution strategy, marketing, business development, project management, consulting, and research and development.
Previously, Mark served as Senior Director for Revionics/Aptos solution marketing and Director for Oracle Retail Solution Strategy for their Merchandising, Allocation, and Pricing solution.
