As retailers and brands pivot to meet the demands generated by a massive shift to e-commerce, there’s a renewed focus on inventory management, which includes finding ways to reduce swollen inventory levels created when physical stores were closed this past spring.
Julie Hutchinson, who works in business development and serves as the spokeswoman for the Parker Lane Group, said the environment requires retailers and brands to rethink inventory management, including looking at excess inventory options such as re-commerce.
The Parker Lane Group offers stock management solutions for fashion retailers, which includes AI-powered reverse logistics and other services. Here, Hutchinson discusses the challenges brands and retailers face and what strategies and options can be deployed to manage inventory following the disruptions of the COVID-19 pandemic.
WWD: What are some of the options for retailers and brands who are sitting on excess inventory?
Julie Hutchinson: Brands have several options regarding excess inventory. They can try to clear stock with excessive discounts as well as sell to jobbers or discount outlets. However, unmanaged re-sale and discounting can affect brand equity and lead to sales cannibalization. Brands can also consider canceling orders with suppliers, destroy unsold stock or recycle. Unfortunately, each of these options comes at a financial cost and, in some cases, risk reputational damage.
The most commercially compelling and sustainable option for retailers is to re-commerce unsold inventory into secondary markets. This allows brands to achieve three targets simultaneously: First, brands make a financial return on stock deemed worthless in primary markets. Second, they protect the brand image in core markets. Third, they promote a genuinely circular economy as a product’s life cycle is extended to its maximum potential.
WWD: What are the challenges facing traditional retailers since stores reopened?
J.H.: The main issues facing traditional retailers can be seen as twofold: on the one hand, they must develop robust e-commerce operations. On the other, they must shift the lingering unsold inventory from COVID-19.
The transition to e-commerce is proving inevitable: retailers need to pivot commercially to capture online traffic as consumers prefer to buy from home. However, the rules of e-commerce are very different to those of in-store inventory management: most retailers are not equipped to handle the high rate of e-commerce returns. High volumes of returns are unusual for traditional retailers, so many brands do not have effective in-house returns management systems.
These issues can’t be resolved by 3PL or delivery companies either: it is one thing to fulfill orders and provide seamless deliveries to customers, and another to manage complex inventory problems when returns are made. The real challenge is processing, sorting and eventually salvaging value from returned items. The inability to do this results in massive waste and major financial losses.
This leads to the second key challenge facing retailers today: their general lack of knowledge on how to effectively liquidate their excess inventory. Transitioning to e-commerce and outsourcing deliveries to third parties doesn’t resolve the lingering issue of unsold inventory, or solve the complex returns management puzzle of how to salvage value from imperfect stock.
Retailers are becoming aware that none of their traditional methods or models apply in these unprecedented times. Brands need to completely reevaluate their supply chains, treating excess inventory management as a core component of their business strategies and not as an afterthought.
WWD: What investments should brands make in order to safeguard their supply chains from future market disruptions?
J.H.: The answer sounds straightforward but is not so simple: brands need to invest in the right partnerships across their entire supply chain.
First and foremost, brands require industry expertise to help them navigate the inventory conundrum. COVID-19 exposed supply chain vulnerabilities that existed before — and that will remain relevant after — the pandemic. Brands need a safe pair of hands to navigate out of the issues the pandemic has created, but, more crucially, to enter norms of the new world.
A second equally crucial partnership for brands is with those who can facilitate stock exit routes into secondary markets. Omnichannel resale routes are at the core of supply-chain resilience: discreet and secure access to secondary markets is essential to prevent stock overflow and sales cannibalization in core markets.
Finally, as online operations overtake traditional brick-and-mortar outlets, brands must invest in the right returns management partners to prevent an inventory accumulation crisis while salvaging as much value from their returns as possible.
WWD: Should retailers opt for in-house or outsourced inventory management solutions? Why? What are the benefits of outsourcing?
J.H.: It is more cost-effective for retailers to outsource inventory management solutions. Inventory management is an auxiliary function, though it should be considered an entirely new business as resale models diverge significantly. Effective inventory management is complex and has to resolve a range of industry blind spots. Investing in the technologies, personnel and internal restructuring required to develop in-house solutions, therefore, becomes prohibitively expensive for the average retailer. It’s been proven that brands cut costs when they fully focus on their core businesses whilst outsourcing the solution to a reliable partner.
Finally, developing omnichannel exit routes requires access to secondary markets. For example, Parker Lane Group re-commerces in more than 60 markets worldwide — a client pool that is otherwise not immediately available to the average retailer. Brands also need to ensure their stock doesn’t end up in their core markets, as often happens with jobbers. Parker Lane Group addresses this by ensuring all processed stock fully auditable and traceable down to the stockkeeping-unit level. This allows brands to remain in control of their stock at all times while their chosen partner simplifies complex inventory problems on their behalf.
WWD: Can efficient supply chains ever be truly resilient? And sustainable?
J.H.: Yes — efficiency, resilience and sustainability are interrelated, multilevel processes extending across the entire supply chain.
In the context of reverse logistics, this trifecta is achieved when brands have reliable omnichannel stock exit routes that work in harmony with the retailers’ strategic goals. Efficiency comes when brands outsource excess inventory management to expert partners and focus all of their resources on their core business goals. Resilience comes in the form of adding reliable partners with the appropriate expertise, scale and flexibility that become the retailers’ “safety net.”
The most sustainable option for brands is extending product lifecycle to its maximum potential to salvage as much value as possible (and only recycling items when they are no longer usable, rather than sending brand new stock to recycling which is wasteful, not to mention expensive).