Fashion players will have more shelf space available for in-season products, which could help them generate more sales.
(See Exhibit 2.) Good inventory management brings three benefits to fashion companies: For fashion players, inventory turnover has a positive correlation with profitability, as seen in a ten-year analysis of four global fashion brands. Supply chain agility enables fashion brands to balance supply and demand, thereby reducing inventory costs, improving capital efficiencies, and potentially generating more revenues or sharing the gains with customers through reduced pricing. (See Exhibit 1.)Ĭompanies with supply chain agility are able to respond quickly to short-term changes in demand. For example, the average inventory turnover of the world’s leading fashion brands soared from 108 to 121 days between 20. It is estimated that the loss of global fashion sales was as high as 20% in 2020, slowing down inventory turnover times and driving up inventory costs.
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On the supply side, anti-COVID measures, such as quarantines, have caused frequent disruptions in logistics and manufacturing, impeding sales growth-especially in offline channels. The rise of remote work has reshaped consumer behaviors, causing much less willingness to pay for apparel, footwear, and other nonessentials. According to an OECD survey, in July 2022, the Consumer Confidence Index dropped from 87.4 to 55.4 in the US and from –3.6 to –27.0 in the European Union. On the demand side, consumers’ income and confidence have experienced sharp declines. Further complicating matters is that, in the face of growing e-commerce activity, consumers are now expecting larger product collections, faster product launches, and cheaper prices.īecause of the COVID-19 pandemic, the fashion industry has seen a lower rate of inventory turnover. As a result, fashion brands must address a long tail of fragmented demands by providing more nonstandard SKUs more often, which puts pressure on forecasting and inventory management.
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The fashion industry in recent years has become increasingly inclusive by catering to all individuals-regardless of their culture, skin color, size, and more. Changing Demand, E-Commerce, and Covid-19Ĭonsumers’ fashion needs are becoming more diverse. Our experience suggests that by building an agile supply chain-a customer-oriented, end-to-end mechanism for responding to fluctuating demand-retailers can gain a powerful competitive advantage. To help fashion players overcome these challenges and address supply issues directly, we’re sharing critical insights from our work with leading fashion companies. Finally, it is not uncommon to see companies struggle with high inventory levels, because the design-to-shelf lead time often takes at least six months, by which time consumer tastes may have moved on. Second, the fashion industry has long supply chains that span planning, design, sourcing, production, logistics, and retail, making end-to-end supply chain management challenging. Products vary by style, category, color, pattern, and size-all of which need to be considered in store-level merchandising, adding to difficulties in inventory management. First, SKUs in the fashion industry are extremely complex. Product complexity, long supply chains, and constantly evolving consumer needs are the key factors that make balancing supply and demand such a high-wire act. It’s no surprise, then, that accomplishing this feat has become a top priority for companies looking to ensure sustainable, long-term business expansion. As recent as the third and fourth quarters of 2022, many leading global fashion players reported excess inventory levels, some up as much as 40% over the previous year, resulting in steep discounts and impact on the bottom line. SHEIN is not a client of BCG.īalancing supply and demand in the fashion industry is not easy-but it is necessary, given the direct impact of inventory turnover on profitability. The remaining research was conducted through publicly available sources. This report was produced with the cooperation and consent of SHEIN, which allowed BCG access into its sourcing and supply chain operations. Technology, Media, and Telecommunications.
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