Fashion retailers have been missing an important tool for the past couple of years, which may partly explain why inventories have been elevated and everything — especially apparel — appears on sale.
“When the business was at its best, we would start the season, the fall season, with 65% of our money spent and 35% of our money opened to chase,” Victoria’s Secret CEO Martin Waters said at an October investor day, according to a transcript from Sentieo.
“Chase” is the CEO’s term for seizing on trends and consumer preferences. A few weeks into a new season, the brand would use sales to determine which styles to order more of and which to ditch.
“It means you don’t buy the losers, and you buy more of the winners,” Waters said. “During COVID, forget that. Tear that playbook up completely.”
It’s quite the about-face. Before the pandemic, many retailers were consciously working on decreasing their “lead times” — the time from when a design starts to when it hits the store. Brands like Nike, Kohl’s, and Ralph Lauren were laser-focused on shaving days and even weeks out of their lead times to be more responsive to consumer preferences. In 2017, Nike was trying to get 60-day lead times down to 10 days.
But last year, products were spending 80 days just in transit from the factory to the warehouse — not including design and manufacturing time.
Brands can’t chase trends successfully if they lack any semblance of certainty on when goods will arrive — the pandemic certainly stripped that away.
Factory shutdowns, port pileups, shifting airfreight capacity, and materials shortages are just a few of the reasons that retailers haven’t been able to count on estimated delivery dates since the second half of 2020. That means they’re more likely to sell out of the “winners” and have too many of the “losers,” which then leads retailers to offer deep discounts to get rid of them.
And industry data suggests that even though the line of ships off the coast of California is gone and most shipping modes are nearly back to normal, retailers haven’t completely recovered.
The inventory-to-sales ratio, tracked by the US Census Bureau, is still below pre-pandemic levels. And uncertainty around COVID-19 policies in China and labor issues in the US could keep apparel brands from trusting supply chains to remain smooth for at least a little longer.
Victoria’s Secret’s chief financial officer, Tim Johnson, said on a Thursday earnings call that the company should regain the supply-chain confidence to chase trends next year. And total inventories will be down somewhat early in 2023, he predicted.
Waters estimated that Victoria’s Secret was able to use the “chase” model for 5 to 10% of its stock. And at the end of the third quarter, the company’s inventory was up 21.8% year over year.
The plan, though, is still to get faster. The company is working on transitioning to digital design methods, incorporating artificial intelligence into the planning process and using digital samples instead of physical ones, which must be sent from factories to design offices — shaving off precious days and weeks of the design process.
That precision, if it achieves it, could mean more profits for retailers and fewer discounts for customers, but that’s a big if.