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Brand Builder Directory

Inventory Planning in a Recession

Rachel Solomon
August 12, 2022

By Rachel Solomon, President of Solomon Strategy Partners

With a background in merchandise buying, planning, and product development for omni-channel luxury retailers (Neiman Marcus) and high-growth DTC brands (Mizzen+Main, milk + honey, Howler Brothers), Rachel blends the art and science of assortment strategy and inventory planning to help brands increase their profitability and refine their product offerings.

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“You can’t connect the dots looking forward; you can only connect them looking backwards.” – Steve Jobs

I don’t have a crystal ball, and frankly, am just as curious as you are about how the next 12-18 months will play out in the retail world. Are we entering a recession? Are we already in one? How will this wave of economic uncertainty impact consumer buying tendencies? I don’t know. But I can connect some dots looking backwards over my time working with large luxury retailers, small boutiques, and rapidly growing DTC brands over the past decade. And I can make some suggestions about how to manage your inventory during times of uncertainty.

As we’ve seen from big box retailers like Target, Walmart, and Old Navy, even companies with the most robust forecasting systems are suffering the consequences of being overstocked after a period of inflated demand coupled with unprecedented supply chain delays. In fact, Maria Monteros from ModernRetail writes that Target’s operating margin is predicted to drop to 2% from their forecasted 5.3%, due to aggressive markdowns to clear out of excess inventory. 

How can you, a smaller brand that can’t necessarily afford such a low operating margin, plan for the best while preparing for the worst over the next 18 months? 

Simplify. Prepare. Grow Intentionally.

Simplify

You know what you do best. It’s written in your mission statement. It’s what your customers know you for. Focus on that. Clarify your core assortment, and edit it if necessary. 

I look to brands like Cadence as an example of simplicity. With their curated selection of colors of the same masterfully designed capsule that can be used to hold any, and all, of your travel toiletries, they cater to many needs with just one product (and some beautifully designed custom labels).

Prepare

If you use a certain type of packaging, or component, for one or more of your core offerings, buy enough for the next 6 months – as long as it doesn’t expire. This can help improve your margin as you negotiate discounts for buying at a higher volume. And, it will help lessen your reliance on the very unpredictable global supply chain. If you already have key components for top selling items on hand, you won’t need to scramble (and potentially pay higher transportation costs) if your demand suddenly surges. Because you are only doing this for your core assortment, there is little risk if demand temporarily plummets since you will eventually use these components. 

Grow Intentionally

In August of 2021, when clothing and accessory industry sales were up 36.6% year-over-year (Shearman), Old Navy announced a plan to dramatically increase accessibility to an inclusive size range from 0-30, and XS-4X in stores. Less than a year later, it is unfortunately scaling back on this plan and removing inclusive sizes from stores across North America (Monteros). We can learn from Old Navy by avoiding drastic inventory increases during good times, only to roll back just as drastically when sales slow down. Of course, I am not suggesting you remain stagnant. But perhaps really consider your long-term goals before launching new products, and take gradual steps to see what resonates with your customer as you test and learn over the next year or so.

I look to brands like Crown Affair and Disco as examples of intentional growth. With assortments of only 18 and 10 products, respectively, they stay true to their roots of ‘haircare essentials’ and ‘men’s skincare simplified’. Both brands wisely combine their existing core products to create bundles for specific purposes (Disco offers bundles for anti-aging and anti-fatigue). And, when they launch a new product (like Crown Affair’s The Cleansing Scrub), it is done with intention. Check out Crown Affair’s blog post on the launch of The Cleansing Scrub to see what an intentional, thoughtful product launch looks like. 

Though we are in a time of continued uncertainty, I have seen great success from brands that simplify, prepare, and grow intentionally. I look forward to following your success, too.

Any questions or thoughts you’d like to share? I’d love to chat. Feel free to send me a note at rachel@solomonstrategypartners.com. 

References

Introducing the Cleansing Scrub.” Crown Affair, https://www.crownaffair.com/blogs/top-of-mind/introducing-the-cleansing-scrub

Monteros, Maria. “Unpacked: From deep discounts to phaseouts, how retailers are unloading excess inventory.” ModernRetail, https://www.modernretail.co/retailers/unpacked-from-deep-discounts-to-phaseouts-how-retailers-are-unloading-excess-inventory/

Shearman, J. Craig. “August Retail Sales Rise Despite ‘Trifecta of Macroeconomic Headwinds.’” National Retail Federation, https://nrf.com/media-center/press-releases/august-retail-sales-rise-despite-trifecta-macroeconomic-headwinds


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