As supply chain woes persist, brands’ inventory management strategies are evolving
Like many other brands, healthcare worker apparel company Kindthread hasn’t been immune from supply chain cost increases. In response, over the past 12 months, the company has taken steps to reduce the number of SKUs it offers.
“We can do a lot more with fewer styles,” said CEO David Murphy. “That allows us to prioritize and focus, and make sure we’ve got an assurance of supply on our very best, highest-performing gross margin styles out there.”
Through 2022, retailers have continued to grapple with supply chain issues, from volatile shipping delays to cost increases for raw materials — cotton, for example, hit a ten-year high in November. Other retailers are dealing with overstock as delayed shipments come in, causing a need for promotions to clear out out-of-season stock. Against this backdrop, brands are tweaking their inventory management strategies like cutting SKUs, promotions and price hikes.
“I think for everybody, regardless of what industry you were in had supply chain challenges and difficulties,” in recent years, Murphy said.
The disruptions to the supply chain that erupted during the pandemic due to lockdowns, closures and import restrictions have yet to recover in 2022. Though COVID-19 restrictions have largely lifted, there are still challenges around raw materials costs and logistics. Major American ports remain congested, with American Shipper reporting the number of stuck shifts at major ports up 66% at the end of July compared to June.
For its part, Kindthread operates four lines of clothing: Landau, White Cross, and Scrubs & Beyond, which are apparel for healthcare workers including scrubs and chefwear for kitchen uniforms and wipes. It operates its own retail stores and has wholesale partnerships. Murphy said reducing SKUs to top-selling items like scrubs in traditional colors has allowed the team to focus on keeping top-selling products in supply across channels.
“These are things, from a priority standpoint, we can’t be out of stock of, because we want to make sure we serve our wholesale partners at a high level,” Murphy said.
He said the company also buoyed by long-term relationships with suppliers and vendors located in multiple countries, allowing for fabric to be quickly dyed and put out in the marketplace. Still, it’s been a “topsy-turvy” season for supply chains, he said, requiring a strong team and quick thinking.
“At times, you’ve got to be flexible. And you make decisions on, ‘Do we want to air something in to make sure that we can serve our customer, or can we delay it?’” he said.
Women’s intimates brand Lively’s founder and CEO Michelle Cordeiro Grant said sales tend to follow an 80/20 rule, meaning around 80% of sales come from about 20% of their styles. As a result, the brand stays “laser-focused” on making sure top-sellers are in stock, with a priority based on its top-10 styles.
Lively also has a leg up in keeping top styles stocked because it owns its factories that are dedicated to producing its items. Additionally, products rely on two core fabrics, which allows the brand to shift manufacturing from one product to another in case of increased demand without having to source different materials.
“Inventory is your greatest asset and your biggest killer, depending on your environment,” she said.
Though the brand hasn’t stopped offering new products altogether, Cordeiro Grant said Lively is also reducing inventory by cutting down on launches, for example, going down from six to four. Regardless of the economic climate, Corderio Grant said customer feedback is critical when designing new products to make sure the items are going to be in demand: that means sending out surveys to the 150,000 or so brand ambassadors to get input on potential colors and styles.
“We’ve reduced inventory and optimized toward our top styles and have been more diligent on how much we’re launching and what the focus of a launch really is,” she said.
Other retailers may look at how to keep their top-selling items in front of consumers while they experiment with new launches. Lindsey Johnson, the CEO of Weezie Towels, said that the brand is not necessarily curbing any SKUs or slowing down on launches — in fact, it is launching shower curtains later this year. Instead, the brand is working to put together product bundles that tie together top-selling products, and offering pre-embroidered versions of its top-selling products.
“Our hope is that offering core products in fresh ways will help mitigate any volatility we might experience from new product launches,” she said in an email to Modern Retail.
Women’s intimates brand Soma is another example: Molly Langenstein, CEO of Soma’s parent company Chico’s FAS, said at the company’s first-quarter earnings call in June that 95% of total inventory. Soma consisted of core bras and panties in basic replenishment colors and styles. The company is also addressing supply chain costs by shipping through more oceans as opposed to freight. It’s budgeted for higher supply chain costs in the second half of the year. And Chico’s also shifted its production calendar by 10 weeks to help mitigate extended in-transit times, Langenstein said.
“We will continue to respond to these new challenges they arise, and we’ll keep actively managing our production calendar to avoid the costly airfreight until we see the situation changing,” Langestein said in the call.
As more brands and retailers make changes to how they manufacture and manage inventory levels, they’re also trying to put off having to make drastic price increases, particularly as more shoppers express concerns about inflation.
Juliana Prather, CMO at retail software startup Edited, said retailers that are able to refrain from passing along their price hikes in the form of higher prices will be rewarded with loyalty down the line. A new report from Edited found the average price of women’s fashion items were 14% higher than pre-pandemic levels. Brands like Lululemon, Land’s End and Columbia have also mentioned making selective price increases in recent earnings calls.
“Customers will remember,” she said.
In lieu of price hikes, Prather recommended that retailers take “a surgical approach” when eyeing their inventories. And data indicates this strategy is being adopted. Edited’s research team found that while the number of items available online at U.S. retailers is 3% less than in 2021, new styles that have been replenished since the start of the year have risen 8% year-over-year. That indicates brands are investing in merchandise with a proven track record as customers limit their spending on discretionary items.
Prather said good inventory management at this time also means staying true to what customers have come to expect from the brand, such as pledges to offer an inclusive size range.
“Just be smart about what your customers are going for,” Prather said.