Introduction
Traditional theories in inventory management are no longer sufficient to cope with the fundamental changes in fashion retail.
The situation is becoming more and more complex due to an increased number of sales channels, shorter seasons and changed customer behavior. However, consumers and investors are pressing fashion retail to reduce its ecological footprint. More complexity can't, therefore, lead to more transfers of goods and increased greenhouse gas emissions. Inventory management thus requires a thorough review.
What is inventory management in fashion retail?
Inventory management is the process of storing, distributing and managing the flow of goods and materials within a fashion retail organization. It is a critical process for retailers because inventory represents a significant -mostly season-specific- investment and, if not managed effectively, can lead to lost sales and profits. The main challenge in inventory management is forecasting future demand and ensuring that the right inventory level is maintained. Yet, changing consumer habits make it even more challenging to lay down the correct puzzle.
Will you send the same items to both your online & offline sales channels? In what sizes? How will you deal with one channel selling out faster than the other in a time where a 'no stock' often leads to 'no sale' as a customer reverts to a competing channel?
The complexity of managing inventory in an environment determined by seasons is, therefore, ever more increasing.
Why is the process of managing inventory in retail in need of a fundamental change?
The process of managing retail inventory needs a fundamental change because it is outdated and inefficient. It is based on a system where retailers purchase products from suppliers and store them in their warehouses until they are sold.
The system is too slow, and it does not allow retailers to respond quickly to changes in demand.
Quick responses have become crucial. In fashion retail, the customer has become unforgiving. Marketing and sales may have gone out of their way to make customers aware, nurture them, and lead them toward a purchase, only to find the desired item out of stock.
In such a case, a few strokes on a smart device suffice to lose the purchase to an online competitor.
Avoiding out-of-stock situations has, therefore, become essential. Traditional supply-chain planning was designed around a fixed, rule-based approach. Future-proof planning builds on readily-made available data and the use of data science and AI techniques.
How can AI-driven recommendations improve those typical inventory management processes?
Firstly, big data can help businesses track inventory levels and trends over time. This enables managers to make informed decisions about when and how much stock to order.
Secondly, AI can be used to forecast demand for products, allowing businesses to plan their inventory needs in advance and avoid running out of stock.
Lastly, big data and AI can be used to identify patterns in customer behavior, which helps businesses make decisions about which products to stock and how much of each product to order.
Retail environments have particularly welcomed these improvements in data gathering and analysis. In the past, traditional supply-chain planning relied on a fixed, rule-based approach to replenishing items, but this method is no longer efficient.
Nowadays, future-proof planning leverages available data and AI to enable machine-learning algorithms to produce demand forecasts for specific items. Retailers can use this information to avoid out-of-stock situations and automate the cumbersome process of inventory analysis.
Improved inventory management is especially beneficial for retailers because the customer experience is unforgiving. In fashion retail, marketing, and sales teams may work hard to nurture customers and guide them toward making a purchase, only to have the desired item out of stock.
By leveraging data and AI, retailers can avoid these situations and remain competitive with online competitors.
