While brands like H&M have made headlines recently for their staggering inventory problems, the issue of overstocking in retail isn’t limited to fast fashion. Retailers have long struggled to calibrate orders against market demands and manufacturing holdups, often over-ordering to offset high upfront order costs and, of course, to prevent stock-outs. The ugly downside is higher inventory risk, damage to margins, and brand dilution, not to mention waste.
While traditional manufacturing models might frame a certain level of overstocking as a necessary evil, H&M offers a cautionary tale in an industry moving toward omnichannel sales and faster service (in both production and delivery to consumers). Luckily, with the right technology and approach to manufacturing, there’s hope for companies large and small to trim the inventory fat once and for all.
Below, we’ll break down what causes overstocking, and how the retail tides are changing to address the issue.
How Traditional Retail and Manufacturing Models Contribute to Overstocking
High MOQ’s – In order to offset production costs and turn a profit, traditional manufacturers often set high MOQs (minimum order quantities). Companies may be forced to order more of a product than is necessary or than it can reasonably sell, leading to bloated inventory and markdowns.
Long Lead Times – Traditionally, retailers are at the mercy of time when it comes to fighting the dreaded stock-out. In traditional manufacturing, it can take up to six months for a new item to hit the sales floor. In an increasingly fast-paced retail market, companies can’t afford to make consumers wait that long for the newest trend. Knowing a stock-out might take months to correct, companies often err on the side of excess.
Dependence on Brick and Mortar Stores – In-person shopping certainly retains a lot of value, but consumers increasingly demand a multi-channel shopping experience. Companies that don’t offer online or mobile shopping opportunities miss out on a huge chunk of the market that just isn’t buying from in-person stores – leaving brick and mortar establishments to rack up unsold goods (pun intended).
How Today’s Retail Trends Are Driving Change
Collaborative, Digitized Design – From design to delivery, retail is a beast with many heads that all need to be able to communicate ever more quickly and fluidly in order to respond nimbly to market demands. Technological advances such as 3D printing paired with user-friendly, cloud-based interfaces are making collaboration and production faster, simpler, and more transparent.
Embracing Omnichannel Sales – It’s easier (and more crucial) than ever to both market and sell products online. Social media is a godsend for building omnichannel brand awareness, and companies that embrace e-commerce in lieu of or in addition to brick and mortar sales are getting more goods into their customers’ hands, faster than ever.
On-Demand Clothing Manufacturing – Small/new and well-established businesses alike can make more targeted, more responsible upfront orders by utilizing on-demand clothing manufacturing (ODM). With low to no MOQs, shorter turnaround times, and more operational transparency, ODM gives retailers of all shapes and sizes more control over inventory and deliveries. And when you’re able to order exactly how much you need, right when you need it, you can even test markets with small batches to prevent over-ordering something that won’t sell.
Retail may not be completely out of the inventory woods, but we’re optimistic about advances in technology and manufacturing. Want to see for yourself how on-demand clothing manufacturing can help prevent overstocking? The/Studio offers cut-and-sew custom manufacturing on an easy-to-use, cloud-based platform, making manufacturing more accessible and rewarding.