It seems obvious that retailers increase profitability only as they sell more. Yet the pandemic has shown that this is not always the case. It can be more profitable and sustainable for brands and retailers to design and sell fewer, higher quality products with design elements such as premium fabrics and performance features. Although consumers will purchase fewer products, brands and retailers can profit just as much or more than they did in the past. They can also build a more satisfied and loyal customer base because their products last longer and perform better.
Inventory and profitability
2020 factory shutdowns and order cancellations forced numerous brands and retailers to handle lower inventory levels, which resulted in higher margins and fewer markdowns. This was not as much of a problem as expected. For example, American Eagle Outfitters, Inc. is now operating with the thought that sales should outpace inventory, a strategy that gave the company its best margin results. Macy’s also reduced inventory, leading to higher 2020 third-quarter results than expected. While profits were not above estimates, losses were down. Many apparel companies have trimmed operational costs and reduced inventory through cutting SKU counts (Young, 2021, p. 32). Brands and retailers can, in fact, be more profitable with less inventory. As the pandemic continues, companies will likely continue to be conservative as they purchase inventory.
When brands consider costs including tariffs, storage, and shipping from other countries, and then holding inventory that might not sell, one-off, on-demand delivery is more appealing. Also, by manufacturing only when a consumer purchases an item, brands can offer more options when it comes to sizes and colors (Nishimura, 2021, p. 20).
Customer loyalty
However consumers shop, loyalty is hard won these days. Cotton Inc.’s Lifestyle Monitor Survey found that 47% of shoppers state that they are less loyal to brands than they were two years ago. Of course the need for and access to apparel changed during the pandemic. However, consumers valued the companies that prioritized listening and communicating, who “showed up.” Brands with high-quality products, like performance features, fall into this category.
Consumers can expect fewer promotions and clearance offerings as brands and retailers cut SKUs and evaluate product margins. However, World’s Global Style Network (WGSN) suggests that brands hyper-personalize their marketing to allow customers to send offers and reminders to build loyalty. Digital Business Collective found that 93% of consumers are more likely to return to companies with strong customer service (Lifestyle Monitor, n.d.).
Continuing forward
In conclusion, while holding lower inventory can help companies increase profitability, retailers can also build customer loyalty through their focused products. Furthermore, offering limited, high-quality inventory is better for the environment, as less textile waste goes into landfills. Doing more with less is a win for companies, consumers, and sustainability.
References
Lifestyle Monitor. (n.d.). Carving out loyalty. Cotton Inc. https://lifestylemonitor.cottoninc.com/carving-out-loyalty/
Nishimura, K. (2021, January 8). Small batch and on-demand: The return of U.S. manufacturing. Sourcing Journal Sourcing Report, 19-25. https://issuu.com/sourcingjournalevents/docs/21_spread_compilation_19/6
Young, V. (2021, January 8). Running lean and mean. Sourcing Journal Sourcing Report, 31-33. https://issuu.com/sourcingjournalevents/docs/21_spread_compilation_19/6
