This blog post has been drafted by Secret Sales for publication on the ChannelAdvisor blog. All opinions expressed, advice and sources are provided by Secret Sales.
Prior to Covid, a retailer’s AGM would go a little something like this:
“How do I clear excess stock without damaging my brand, and still make money?”
A year on, and the industry has the same problem, except it’s magnified a hundred times over because the global economy and consumer habits have changed.
Overstock is one of retail’s biggest challenges. For example, brands and retailers could achieve an average of approximately 70% sell-through at full price – meaning almost a third of all goods they manufacture end up being marked down. Let’s look at some strategies that will help to manage surplus inventory sustainably, and ultimately contribute to a more circular economy.
Third-party clearance: is it unavoidable?
Retailers can choose to discount stock on their own channels, but too many promotions will begin to erode their brand image. And in the face of economic uncertainty, operating a physical outlet store is costly. Brands and retailers often turn to a third party to manage clearance, regarding the process as no more than cash recovery. Third-party clearance can be seen as a necessary evil.
There are several issues with this approach:
- Once brands have sold stock to a wholesaler, they lose control of representation online, and traditional off-price operators are aware of this problem. Flash sales sites, online discount retailers and brick-and-mortar off-price stores capitalise on being able to sell old stock at an aggressive discount in a way that can erode brand equity.
- These challenges are not only brand-specific. Traditional clearance routes can offer poor service standards and delivery options for consumers faced with either a treasure hunting experience among cluttered shelves in physical stores, or a guessing game while browsing on marketplaces where counterfeit products are rife.
- Not every item of discounted stock is sold, and estimates indicate that ‘dead inventory’ is costing the retail industry billions of pounds a year.
- The knock-on impact of this ‘dead inventory’ on the environment is staggering. Over 92 million tonnes of waste are currently produced by the fashion industry annually, with one lorry load of textiles sent to landfill or burnt globally every second, equivalent to $500 billion lost annually due to clothing underutilisation.
Managing clearance in a post-pandemic world
Covid-19 offers us all a chance to reshape the industry’s value chain with an innovative approach to clearance. Themes such as digital acceleration, discounting, industry consolidation and corporate innovation are being prioritised now that the immediate effects of the crisis are beginning to subside.
New consumer preferences adopted in 2020 have hastened retail’s digital transformation and led to permanent change. What’s clear is this: retailers need to become uncomfortable with uncertainty and start to ramp up future-proofing efforts to make the most of opportunities the pandemic has presented.
Here are my key takeaways, 12 months on.
- The success of online marketplaces indicates that digitally connected operations, coupled with a great customer experience and service standards, will win over all other channels.
- Connected inventory and digital is evidently the way forward. However, full-price platforms cannot risk entering the off-price space for the same reasons full-price retailers cannot promote sales in perpetuity.
- The importance of value to consumers remains key, with 56% stating their main reason for purchasing clothing during the last 12 months was due to a special promotion.
- Consumers require a digital destination for discounted products with reduced noise and ease of shopping.
- To manage excess inventory effectively, brands can consider a separate online channel that acts as an extension of their own ecosystem. This way, they can deliver a direct-to-consumer experience aligned to their existing e-commerce operation in an effective and scalable way, while remaining in control of brand equity.
In presenting off-price goods as prime aged inventory, brands and retailers can also attract a new audience, some of which may go on to become full-price customers. Taking a fresh look at clearance and finding a long-term strategy will move the industry towards a purpose-driven economy. It is time to press that reset button.
Blog post by Matt Purt, owner of Secret Sales, Europe’s fast-growing off-price premium e-commerce marketplace