A Brand’s Perspective: Managing Cash Flow
Under duress from the Coronavirus pandemic, retailers are cancelling spring orders – sending fashion brands into scramble mode to re-establish cash flow and protect their businesses. This reaction is a product of the panic mode the fashion industry is currently in as we face mounting uncertainty.
A global crisis such as this unravels in three stages. The first is the panic stage, which is taking place at the moment. Next comes stabilisation, followed by recovery. While there are no fixed durations, experts predict that each stage will last for at least a quarter.
Hilldun Corp. CEO, Gary Wessner, expects the recovery phase will be in “full swing for resort deliveries.”
The panic phase is the first stage of any retail crises – sales come to a reactive halt as leaders struggle to grasp the challenges ahead. It has the potential to incur losses for fashion brands.
With many stores forced to shut down in an effort to contain the Covid-19 outbreak, retailers have set in motion preservation initiatives. This renders their original inventory plans moot and prompted a wave of production order cancellations in recent weeks.
Following this, brands have to take a proactive approach to expand distribution and offload current overstock issues. Each piece of the sourcing chain will be affected and has to be approached differently at this phase of the crisis. Brands have to analyse their entire supply chain and start working towards re-establishing cash flow.
Brands now face the critical task of outlining a strategy to weather the current storm while simultaneously preparing for the aftermath – when stores re-open and consumers are willing to start spending again.
Here are key actions to consider as companies brace for the coming months.
#1 Pause Production
The first item on a brand’s agenda should be to conduct a review of existing production. To curb losses, any production that can be halted should be. Even if fabric has been purchased, moving forward with production will only add to costs that brands would not be able to profit from at this time.
Luxury womenswear brand Lafayette 148 has adopted this cost-saving measure, stating that it is scaling back in terms of style by 20%. The upside to this is the brand will be ready to go once the market stabilises. Since it already has the fabric earmarked, it can swiftly react again by resuming production.
#2 Looking Ahead
It’s important to consider how the consumer mindset will evolve throughout the pandemic. Once nation-wide lockdown and quarantine orders cease, consumers will start to revert back to pre-Covid-19 purchasing habits.
Brands should prepare for each stage of the crisis and mirror this process in their inventory management. As we are in panic mode, stocks are not moving apart from comfort products. However, once normal operations resume and retailers are ready to receive new products, brands should position themselves to fill the immediate needs of retail.
This is the time to take proactive measures in anticipation of the stabilisation period by looking into what consumer demand will be like when the panic subsides. Brands should optimise their inventories based on their findings.
Break collections into groups of products that reflect evolving consumer psyche as the pandemic unfolds. Plan an appropriate inventory to meet retailers’ needs in the coming months, separate them and have them ready to ship at a moment’s notice.
Managing cash flow according to the three stages of the crisis is crucial. Companies that are aligned with, and prepared for, retailers resuming business-as-usual will have the most to gain in the recovery period.
#3 Tailor Assortment to the Respective Retailers
Once further production expenses have been eliminated, brands should look into modifying existing agreements with retailers. Collections that have already been committed and paid for need close scrutiny against the current market situation.
Segregating items into categories can aid brands in spotting new opportunities. Identify what products are still relevant and with decent margins and tailor assortment offerings accordingly. This process is especially crucial as market demand has been completely upended along with consumer priorities.
Consumers’ increasing reliance on e-commerce opens up new sales opportunities. Analyse consumers’ needs and wants to determine what would gain the most traction and offer retailers assortments that address those needs.
For example, as most populations are spending the majority of their time at home, comfort apparel, loungewear and activewear are categories that brands can capitalise on due to their high potential for sell-throughs.
Enter Into Negotiation With Retailers
In the midst of this chaos, it’s imperative that brands do not agree to outright cancellations – especially considering many brands have already produced and paid for the merchandise. Instead, brands must kickstart negotiations and offer alternatives to retailers.
#1 Extend Delivery Dates
Brands should conduct a complete review of line sheets to determine which styles they can push to later deliveries. Redirect less seasonal styles to later seasons. Offer to stagger deliveries for those items. Brands can also offer to reduce order quantity.
Many brands have ongoing conversations with retailers to find a workaround that both parties agree with. Rebecca Minkoff is in talks with stores to push spring deliveries back from April to June.
Susan Sokol, co-founder of the High Alchemy showroom stated that the company’s brands are looking at delivering merchandise in August instead of June. Most of High Alchemy’s designers produce transitional clothing, which excludes it from seasonal style constraints.
#2 Tactical Discounting
Brands should counter cancellation propositions by offering to reduce the price of products from the previously agreed upon wholesale pricing. However, it’s important to pivot discounting tactics around maximising company margins.
Goods in a collection have varying margins. When offering price reductions, brands should prioritise products with the best margins and offer discounts for those items first. In doing so, brands can ensure cash flow while also clearing inventory.
Retail Intelligence Can Aid Digitisation
Another factor to consider when implementing mitigating strategies is digitisation. Following optimisation of inventory and negotiations with retailers to ensure continuity, there may still be overstock woes.
Brands have to innovate their distribution methods in the current climate as a contingency to fall back on.
#1 Expand Distribution Channels Online
The best way to boost chances for success is by diversifying distribution channels. The effects of Covid-19 on multi-label marketplaces have been minimal as online traffic increases – lending themselves to fruitful partnerships with brands.
Before entering into a partnership with an e-commerce retailer, brands must first conduct a performance analysis to accurately gauge a marketplace’s potential. The Omnilytics dashboard allows for an in-depth evaluation of different marketplaces with little effort.
As seen above, Next surpassed Asos and Boohoo in terms of sell-outs at full price from January to March 2020. For this to take place while Covid-19 cripple the UK market is a clear indication of the retailer’s potential.
Brands can also examine the performance of retailers down to the SKU level to determine the top styles, sizes and colours. This helps to confirm opportunities in the marketplace that brands can jump in on.
#2 Regularly Monitor Performance
Any new venture in retail can bring about teething problems. However, full visibility into product performance can speed up crisis aversion. Through the Omnilytics dashboard, retailers can monitor each product’s replenishment and restock levels throughout its timeline.
By deducing the profitability of SKUs, brands can adjust efforts swiftly. Brands are able to remain nimble and adapt easily by keeping track of different channels’ performance simultaneously.
A Balancing Act
When charting a course of action to overcome these challenging times, brands have to broaden their perspectives to consider consumers’ evolving mindset throughout the pandemic.
While tending to present issues and restoring cash flow, brands must prepare for the future to avoid falling further behind. This includes exploring new distribution channels and digitisation to maximise success.
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