Modern Merchandising Stage 5: De-risk Major Releases with Incremental Wins
August 15, 2022
Over the last several weeks, we’ve released a series of posts dedicated to helping consumer-obsessed brands modernize their merchandising strategies to meet evolving consumer demands, minimize waste, and increase profit margins. Each of these posts represents a stage of MakerSights’ five-step Modern Merchandising Maturity Model, which we’ve carefully crafted based on decades of experience working with some of today’s leading brands:
Step outside your brand’s echo chamber and learn the best data sources and methods for collecting direct consumer feedback to guide decisions around new categories, colors, fabrics, styles, and much more.
Explore the tools and tactics brands can use to digitally transform line reviews in a way that streamlines milestone meetings, accelerates decision making, and helps stakeholders break free from their calendars.
Craft better assortments in less time when stakeholders collaborate with confidence by centralizing team feedback, focusing discussion on key points of contention, comparing qualitative and quantitative data to drive objective alignment, and more.
Stage 4: Remove Silos Between Product Inception and Go-to-Market
Improve region- and channel-specific performance and significantly reduce waste when you incorporate data and regional and go-to-market teams earlier in the product creation process using a cohesive concept-to-consumer approach.
In this post, we’ll tackle the fifth, final, and most difficult stage of our maturity model: De-risk Major Releases with Incremental Wins. With the right data, tools, and processes in place, it’s time to learn how to cover the last mile toward becoming a consumer-obsessed brand — trading large seasonal assortments for smaller, faster, and more iterative releases.
According to McKinsey, nearly 40% of fashion executives plan to move to seasonless assortments to help minimize overstocks. From starting with a single category to reevaluating your sourcing-country mix, we’re providing actionable strategies to capitalize on ever-evolving consumer trends, take more calculated risks, reduce overproduction, and more.
Read on to discover whether your brand fits into this stage, the top challenges and biggest opportunities you’ll likely face, and some of the specific actions you can take to reach maturity. Want to read through the entire maturity model in one place? You can download the full guide for free here!
Start at Stage 5 if…
You’ve consolidated traditionally siloed assortment development stages into a single, cohesive, and cross-functional concept-to-consumer process that factors regional and go-to-market teams and data into early product creation discussions.
Digital commerce channels are a top priority and your brand is actively working to better understand and serve these consumer segments.
Supply chain disruptions, material shortages, and rising costs are viewed as growing threats and areas of concern for your brand.
You’re ready to develop bolder, more experimental newness and take calculated risks that prioritize learning and long-term growth over short-term gains.
Stakeholders recognize that minimizing overproduction, markdowns, and dead stock is critical for improving profits and the planet, but are not held accountable for measuring or making progress in these areas.
Top Challenges and Opportunities
How to Reach Stage 5 Maturity
Step 1: Separate new and core/carryover styles within a single product category.
Adopting an iterative, demand-driven merchandising strategy takes significant effort, and attempting to make the shift in one fell swoop is unrealistic. In the spirit of driving incremental wins, we suggest starting with a single category. Not only does this make the process less stressful, but it also allows you to learn from your mistakes and improve change management and roll-out tactics as you go.
According to McKinsey, 50% of retailers are in the process of major transformation to achieve greater assortment development speed and flexibility.
Whatever category you choose should be among your brand’s top performers, feature a substantial breadth and depth of products, and have enough history to accurately benchmark outcomes against. Within this category, separate merchandising workflows for core SKUs and small carryover updates from those involving bold newness and experimental style creation.
Rather than reviewing each style every season, stakeholders can focus on rapidly testing and creatively honing new and experimental products (more on this in Step 2). Meanwhile, evaluating core and carryover products should become a faster, easier exercise in economics that can be done less frequently. In addition, we recommend assessing the line as a whole twice a year — newness and all — to ensure cohesion without redundancies.
Step 2: Embrace Agile processes.
Agile is a process framework that stems originally from software development. Rather than developing fully-baked products from top to bottom — an approach referred to as “waterfall” — software engineers needed a way to break larger projects down into smaller, more manageable chunks that could be refined and adapted over time.
Agile methodology has grown increasingly popular in today’s on-demand world. It offers marketing, project management, and other teams the flexibility to iterate and improve solutions as they go, as well as respond and adjust to challenges and opportunities as they arise. While traditional merchandising practices abide by waterfall processes, the modern concept-to-consumer approach follows a more Agile workflow that breaks newness into more frequent and incremental releases.
The exact number of SKUs per release depends on the size of each brand and assortment, but it’s important to focus on only a select percentage of total annual newness at a time. With a smaller number of new products, insight into consumer preferences, digital collaboration tools, and the ability to prioritize key points of contention, Stage 5 brands should be able to run through the full concept-to-consumer process in a fraction of the traditional 18-24 month timeframe.
According to McKinsey, brands are increasingly gravitating toward a “less is more” assortment strategy that prioritizes greater in-season reactivity and less complexity. In fact, 43% of fashion executives plan to reduce product development lead times to help avoid overstock, while 61% will reduce the number of SKUs per assortment. Taking this Agile, consumer-obsessed approach to product creation offers several advantages, including the ability to:
Quickly adapt to and capitalize on current events and consumer trends as they occur
Identify and circumvent supply chain issues to avoid increased costs and delays
Test innovative styles and take more calculated risks without long-term consequences
Incrementally reach and grow niche target audience segments over time
Continuously learn and improve assortments to achieve steady, long-term growth
Step 3: Limit forecast timeframes and investment depths.
But in an age where stock markets can crash and obscure trends go viral overnight, asking consumers to accurately predict their own demand 18-24 months in advance isn’t even tenable. Right-sizing SKU depths and shrinking waste requires brands to update forecasts and investments for new styles at shorter, more regular intervals. As experimental products are incrementally released and improved, teams can then adjust order quantities based on up-to-the-minute sales performance and evolving consumer purchase intent.
In addition to minimizing risks associated with investing heavily in new and unproven styles, smaller and more frequent orders also help brands better navigate the supply chain. Creating exclusive, limited edition collections is another way for brands to successfully mitigate long-term forecast and production challenges, while also helping to fuel assortment differentiation. Smaller DTC-focused brands may even choose to explore pre-order, made-to-order, or demand-led models, similar to Taylor Stitch.
Taylor Stitch crowdfunds new products by allowing consumers to purchase them in advance at a discount via its weekly kickstarter-like program called “The Workshop.” Combined with frequent consumer testing, this initiative has led to a 7.5% decrease in seasonal overproduction, plus a 10% reduction in annual markdowns!
Step 4: Reevaluate supplier relationships and sourcing-country mix.
The supply chain has always been an area of vulnerability and frustration for retailers, with every unexpected delay or shortage cutting deeper into profit margins. Unfortunately, the global pandemic only exacerbated these issues. Case in point: 74% of senior merchant leaders cite supply chain fragility as a top concern over the next 12-18 months — yet just 4% are prepared to address this issue.
To successfully transition to Agile, consumer-obsessed product creation and more shallow investment depths, brands must reexamine where their products come from. Retailers should seek to develop strategic partnerships with suppliers that offer greater production flexibility, transparency, and diversity. Almost 50% of brands plan to consolidate their overall number of suppliers, while six out of 10 Chief Purchasing Officers (CPOs) want to increase their number of small-batch suppliers.
Similarly, more than 70% of CPOs intend to increase their nearshoring share, and 24% aim to expand reshoring. In an effort to further mitigate risk and improve in-season reactivity, approximately a quarter will apply dual-sourcing strategies for up to 50% of products. Using a domestic supplier or manufacturing goods closer to where they’re sold accelerates speed to market, lowers customs and duty charges, helps fuel sustainability, and ultimately gives brands greater control over their supply chain.
“There are still very, very few brands who know where their stuff comes from in the supply chain, and even fewer of them have entered into active relationships with those suppliers to reduce their carbon footprint.” — Linda Greer, Environmental Scientist
Step 5: Set goals to reduce overproduction and improve profitability.
Despite the increasingly clear connection between retail overproduction and diminishing profitability, most brands still seek to improve performance by focusing on growth metrics like average transaction value and annual revenue. Unfortunately, this hasn’t stopped markdowns from reaching 40% of total retail sales, significantly damaging many brands’ hard-earned value and priceless integrity. Not to mention the opportunity cost of having the team focused on low-traction products.
While many well-meaning retailers take pride in using sustainable materials, this doesn’t help reduce the 92 million metric tonnes of textile waste produced by the global fashion industry each year. Not to mention, more consumers are actively seeking to buy from brands that uphold their personal values. Research shows that 70% of global consumers are even willing to pay up to 35% more for eco-friendly brands.
The most surefire way for brands to ensure they’re delivering products that consumers love and de-risking every release is to establish KPIs that measure overproduction. In addition to metrics surrounding sell-through and total markdowns, evaluating markdowns by tier (20%, 50%, 80%, etc.) is also important. SKU productivity is a less common but extremely insightful metric that helps brands reach as many target consumers and sell as much as possible with the most efficient number of SKUs.
However, simply measuring overproduction isn’t enough — brands must proactively establish benchmarks, set goals for improvement, and hold stakeholders accountable for success. It won’t be long before retailers must also answer to lawmakers with pending legislation like the NYC Fashion Act, which requires merchants to map their supply chains, disclose key areas of environmental impact, and provide plans to comply with state regulations.
The Last Mile Starts Here
Today’s digital, data-rich, and on-demand world requires brands to seriously reexamine traditional merchandising processes and the impact they have on economic and environmental sustainability. Progressing toward a data-informed, collaborative, agile, and consumer-obsessed model that protects brands’ profitability and our planet is no longer an option.
If you’ve completed the first four stages of MakerSights’ Modern Merchandising Maturity Model, congratulations — you’ve come a long way! Following the five steps outlined in this fifth and final stage will help you get closer to completing the last mile:
Don’t try to boil the ocean — separate experimental newness from core and carryover styles starting with a single product category.
Take an Agile, consumer-obsessed approach to product creation by incrementally refining and releasing smaller batches of new SKUs more frequently.
Right-size SKU depths and shrink waste when you limit forecast timeframes and investment depths.
Reevaluate supplier relationships and sourcing-country mixes to support smaller and more strategic drops that circumvent supply chain issues.
Implement new benchmarks and goals that focus on improving overproduction rates and increasing profitability.
Next week, we’ll publish the final post in this 7-part series that illustrates the effectiveness of the maturity model by highlighting the stories of brands like Taylor Stitch, HOKA, and Faherty. You’ll see what success looks like and learn how to follow in these modern brands’ footsteps.
Can’t wait? Access the full MakerSights Modern Merchandising Maturity Model in one place when you download the free guide.
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