Merchandising in a Recession: Core Assortment Strategies
In times of recession, cash-efficient merchandising is absolutely necessary for survival.
Coming out of the Covid-19 pandemic, brands and retailers must now completely rethink merchandising in the new economical climate. With consumer confidence at an all-time low, purchases will be highly considered.
Because of this, brands need to ensure they are offering a substantial core assortment that keeps customers returning.
Our previous article, Post-Pandemic Retail: Shifting The Fashion Calendar explained how many designers and retailers are lobbying for a new seasonal retail calendar – one that syncs with real-time seasons and reduces discounting, in turn, allowing longer shelf life and sell-throughs.
Saint Laurent, Gucci and Giorgio Armani have already announced their departures from the usual schedule and many more are expected to follow.
So, what does merchandising for a recession entails?
#1 Creating Tighter Product Ranges and Increasing Margins
Currently, the biggest problem brands and retailers are facing is the pile of overstock sitting idly in warehouses. Unable to trade due to store closures, months of back merchandise are no longer suitable for the current season.
While some are hoping to roll this inventory to next spring, this may not be a viable option for every brand – leading many to realise the importance of a leaner product range.
During a time of growth, it makes sense to expand product ranges and produce a great deal of product. But recession merchandising requires the exact opposite, brands need to produce fewer SKUs, increase margin on bestsellers and ensure faster sell-throughs to improve cashflow.
A good merchandise plan is always built upon the foundation of a strong core offering that stays front-of-mind for returning customers.
Core product-focused brands like Nike and Uniqlo are navigating the crisis better than others due to their products’ long life cycles. The longer the product can stay on shelves, the higher its probability is to sell at full-price.
Luxury brands have also started falling back on flagship styles and core accessories to boost margins. Chanel and Louis Vuitton have increased prices up to 10%, starting in key Asia Pacific markets like South Korea, which are less affected by the recession.
Luxury good analysts state this was “a strategy to defend margin and make up for the lack of overseas travel”. With travel still suspended in many countries, luxury brands may opt for greater price hikes now that duty-free shopping is no longer in play.
Omnilytics’s latest report on Merchandising Strategies for the New Normal also explained how Zara was able to capitalise on increased demand by applying dynamic pricing for strategic categories like casual wear.
#2 Balancing Product Newness Versus Core
While the fashion industry will be transitioning to a more seasonless calendar, consumers’ hunger for newness will not die. Trends and events in the zeitgeist will continually affect the latest fashion and even a recession cannot change this.
Fashion needs newness but creating new styles can be incredibly costly. The sampling process alone takes thousands of dollars, eating a major portion of the development budget. To reduce cost, brands must edit their product ranges precisely and cut out any unnecessary ‘filler pieces’ with poor sell-throughs in addition to strengthening their core offering.
Designer brands are a strong proponent of this, brands like Gucci and Dior often produce variations of their core products, such as sneakers and belts that contain a signature element of the brand but is updated season-to-season.
Reworking these signature products also provides brands more versatility in addressing both conservative shoppers that only buy classic designs and more trend-driven shoppers who want the latest and greatest.
In Business of Fashion’s case study of Gucci’s merchandising, CEO Marco Bizzari had previously stated that Gucci’s commercial collections contained 30% new product and 70% carryover product. With the conditions of the current retail environment, we may see this gap widen even further as the demand for evergreen styles grow.
#3 Strategic Replenishments
With less volume, brands must think about faster replenishments. Merchandisers and buyers need to reexamine how they calculate stock cover and sell-through for longer cycles, without relying on markdowns to hit sales targets.
This will impact actions further down the supply chain as manufacturing will also need to adapt to smaller MOQs and faster turnarounds to effectively balance supply and demand.
Another cost-aspect brand should focus on is reducing returns. Returns are a growing cost for brands and retailers as the majority of shopping takes place online. Some social distancing SOPs may include restrictions on trying on clothing in-store, increasing the probability of a return.
To combat this, sizing will not only need to be precise but accurately communicated. Brand’s sizing nets may change seasonally but with fewer product launches, brands need to get sizing right from the start – or at least be able to remedy it quickly.
By studying data size restocks, brands will have a deeper understanding of the core consumer and offer more accurate sizing for tactical replenishments or inform future product development.
Key Takeaways for Recession Merchandising
Cash is king and this statement is especially true during a recession.
As the unemployment rate reaches staggering heights and retail continues to struggle, brands really need to focus on trimming excess fat and fine-tune their merchandise planning. Core products are an essential lifeline, maximising the potential in these is the best defence for your margins.
Brands can no longer afford to rely on markdowns to get through this period so assortments need to be on point and sell-throughs must improve. Data helps to empower smarter merchandising decisions and ensure the products you invest in have high commercial value.
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