When More Isn't More: The Secret to Shrinking Production to Grow Margins
July 6, 2022
It’s no secret that the retail industry is one of the most wasteful on the planet. This has led hundreds of brands to take a step in the right direction by sourcing more sustainable materials, up-cycling discarded products, and engaging in other popular green initiatives. More than 80% of consumers have also taken note and begun adopting more sustainable purchase behaviors over the last 5 years.
Fortunately, the economic effects of overproduction – or anything that doesn’t sell, is sent to off-retail stores like TJ Maxx, or must be deeply discounted — and such unsustainable practices have caused some brands to start seriously rethinking their growth strategies.
More Products ≠ More Profits
For the past few decades, brands have enjoyed an unprecedented power to shape consumer demand. Shoppers waited with bated breath and open wallets for brands to reveal the latest styles each season. The brands with the biggest mass-media advertising budgets and scale to command nationwide shelf space dictated consumers’ entire world of options. The equation was relatively simple: More products meant more profits. Supply practically created demand.
Today, this couldn’t be further from the truth. Modern consumers have real-time visibility into the latest fashion trends and influencer opinions. They’re given direct access to a near-unlimited number of options and personalized recommendations each day. And purchasing products from brands around the world is as easy as a tap or two thanks to digital commerce.
Consumers are no longer a captive audience — and brands’ control over consumers has suffered as a result. Yet most continue to churn out new products in an effort to hit ever-growing revenue targets. This reliance on increasingly inefficient inventory volumes to drive profits has led to more capital intensive growth and eroding margins, while also putting brands at odds with changing consumer expectations regarding sustainable practices.
The result? 40% of new products now fail to sell each season – and are either incinerated or sent to landfills – and 30% only sell after they are marked down. It’s simply unacceptable that nearly a billion tonnes of CO2e emissions are produced each year in the creation of goods that provide zero consumer value and hurt brands’ profit margins. Today’s status quo is not sustainable, economically or environmentally. Overproduction must be curtailed — and recycling materials isn’t the answer.
As Timo Rissanen, course director for fashion and textiles at the University of Technology in Sydney said, "Garment recycling may make the current overproduction seem acceptable, just as plastic recycling makes single-use plastics seem acceptable. Neither are acceptable. We need a drastic reduction in the production of clothing overall: A strategic de-growth of the fashion industry that is commensurate with the planetary emergency we are now in."
Consumer Obsession: Powering Growth and Sustainability
Fortunately, there is a better way, and it starts with creating products that people love, and less of what they don’t. Reducing the waste generated by overproduction – wasted resources, time, and money – enables brands to unlock profits that is decoupled from costly growth in inventory levels. The shortest path to delivering products that people will love and buy is consumer obsession.
You’ve likely heard the term “consumer-obsessed.” But similar to words like “data-driven” and “disruptive,” a quick Google search shows that “consumer-obsessed” has many different meanings. So instead of giving you another definition, here’s a litmus test:
If you had reliable information about your consumers’ future preferences but it conflicted with the assortment you were planning, would you revise your assortment to meet their desire rather than your own?
Consumer-obsessed brands answer with a resounding yes. They understand that success no longer depends on heavily stocking the shelves of local malls, but on truly understanding and meeting consumer needs. They have the humility to admit that merely reviewing historical sales data and tracking cultural trends to inform their intuition is no longer enough. They know that reducing overproduction in a meaningful way requires continuous learning, real-time visibility into consumer preferences, and taking a consumer demand-driven approach to each assortment.
Consumer-obsessed brands solicit specific, forward-looking product feedback directly from their current customers and the consumers they seek to serve tomorrow before assortments are finalized. They’re hungry to put these insights into action and use them to inform decisions around new concepts, silhouettes, patterns, colorways, SKU depths, and more to avoid committing money, time, and carbon to creating products that no one wants.
Rather than focusing solely on growth metrics like sell-in rates, average transaction value, and annual revenue, consumer-obsessed brands are increasing profits by also adopting KPIs that measure overproduction, like SKU productivity and markdowns by tier. They’re proactively establishing benchmarks, setting goals for improvement, and holding stakeholders accountable for doing their part to protect our planet (and lawmakers aren’t far behind).
Take popular online men’s clothing company Taylor Stitch, for example. In addition to launching “The Workshop,” a weekly Kickstarter-like program where consumers crowdfund potential new products by purchasing them in advance, the brand also tests consumer sentiment and demand for specific in-line styles. Eliminating underperforming products prior to production has led to a 7.5% decrease in overproduction each season, a 10% reduction in markdowns each year, and a 2% increase in overall margins.
Sustainability Starts Here
Powering growth and sustainability, consumer obsession – not product obsession – is the future of retail and the key to profitability in today’s digital, data-rich, and direct-to-consumer world. And with that in mind, we at MakerSights reimagined assortment management with the consumer at the heart of every decision.
MakerSights is the only assortment management workspace that embeds consumer obsession into the concept-to-consumer process. With purpose-built analytics and dashboards, the MakerSights Workspace enables brands to collect and share actionable consumer data with everyone involved in assortment decisions, from seasonal direction and design details to which items to adopt and the right investment depth for each SKU.
It also powers rapid assortment iteration that is supported by continuous cross-functional stakeholder collaboration and informed by actual consumer preferences and demand data every step of the way. Our customers are consumer-obsessed, smart-to-market brands, including New Balance, Champion, and Rothy’s, that are driving profit margins that haven’t been seen in decades by radically reducing economic and environmental waste.
Faherty’s Director of Merchandising, Caitlin McGilvery, put it best when she said, “We are now able to create, tweak, adopt, and drop styles based on what we know consumers want, versus what we think they want. MakerSights enables us to take more calculated creative risks, and we’ve seen considerable growth from making consumer-led decisions.”
This is our ultimate goal and one we would love to help your brand achieve. Sustainability starts with consumer obsession, and consumer obsession starts with MakerSights. Let’s talk!
Co-founder and CEO, MakerSights
Related Blog Posts
Curbing Fashion’s Overproduction Problem With Consumer Obsession
MakerSights Co-Founder and President Matt Field recently sat down with Sourcing Journal to discuss why curbing overproduction could have a greater impact on reducing carbon emissions than any other sustainability lever – and how consumer obsession is the key to getting us there.
Breaking the Overproduction Cycle: Causes, Effects, and Solutions
The idea of watching customers leave for competing companies produces enough anxiety for brands to err on the safe side and accept a certain amount of potential waste. But when does overproduction start to cause excessive harm to both your bottom line and the environment? And how do you strike the right balance?