November 30, 2018
The term “sold out” in a trend conscious industry such as fast fashion usually draws in a positive response. After all, what could signify a prosperous business better than assortments that are frequently out-of-stock? Surely, it must mean a cult following status from consumers?
However, there is more than meets the eye when it comes to an assortment being sold out. A speed to sellout rate is derived by comparing the first sellout date of an item against its launch date. Understanding what speed to sellout means is crucial as it helps with the observation of stock movements and market demands, as well as mapping a more efficient retail strategy.
Source: Atomic Tango
A short speed to sellout rate – Generally means that a specific item went out of stock quickly once it was released by the retailer, indicating warm response from consumers. However, there are a few factors that could debunk the initial reason. An item could sell out in a short span if the retailer chooses to set a limited amount of SKU, creating a false sense of high demand.
A long speed to sellout rate – Generally suggests lower interest levels from consumers. However, a longer speed to sellout rate could also suggest higher efficiency in inventory management from a retailer and brand.
In isolation, a quick sellout rate is ultimately ideal. However, when cross analysed against different metrics and factors, jarring results may be uncovered.
As an example, we used two of the biggest names in fast fashion, Zara and H&M, as comparisons to analyse the difference between their strategies and how it affected the speed to sellout rate of a particular assortment.
The chart above depicts the compiled average speed to sellout rates for the first three quarters of 2018. The y-axis is the number of days to achieve a sellout status wheareas the x-axis is the first three quarters of the year for H&M and Zara. Evidently, H&M had a much quicker speed to sellout rate in comparison to Zara, with the number of days to achieve sellout status decrease each semester for both retailers. A speedy sellout is ultimately ideal. However, this only paints the surface of what a speed to sellout initially signifies when viewed from a singular point of view. A more accurate portrayal of speed to sellout rate can be achieved when cross analysed against different variables.
Example of stock status of an item from H&M, with frequent replenishments with multiple sizes but with an extended period of “in stock”.
The image above depicts a representation of the stock status for H&M’s assortments. At first glance, one would rejoice at the prosperous depiction of the stock status which bore multiple stockouts and replenishments. As depicted in the image above, multiple replenishments with various sizes were carried out, with shorter intervals. Initially, one might consider multiple replenishments a good sign, signifying strong market demands. Upon further analysis, the stock status remained stagnant towards the end of the timeline, which could be an alarming red flag given the initial launch of the item which was in December 2017. A prolonged availability of the item in the market may not bear the best news in fast fashion, as assortments should be updated to meet with the ever-changing demands of consumers. Frequent replenishments would lead to an overstocking issue when paired with an extended period of “in stock” status for an item. Careless stock planning paired with a slower production period could imminently lead to every retailers’ worst nightmare; an inventory overstocked with dated clothes, a crisis that H&M is no stranger to.
An example of stock status of an item from Zara with replenishments of various sizes and a stockout throughout the end of the timeline.
Zara on the other hand, portrayed a stock status with fewer replenishments of multiple sizes. Despite their initial longer speed to sellout rate when compared to H&M, this item from Zara had a shorter lifespan with a more uniform “in stock” status between each interval. This gives them more control of the movement of their stock given the “in stock” intervals between each stockout and replenishment.
In this comparison, the key difference between the two fast fashion retailers is the end result of their respective stock status. After cross analysing it against the initial speed to sellout rate, how often it was replenished fully and also the the end results of the stock status, one could suggest that H&M has a higher aged percentage when compared against Zara. Typically, a higher speed to sellout rate yields a lower aged percentage, which is not the case for H&M in this instance. This could suggest a looming issue for the retailer if prompt action is not taken.
While this methodology barely touches the surface of how retail data can be maximised to a retailer or brand’s advantage, the understanding of other multiple reasonings and implications behind a speed to sellout rate can be utilised strategically. This allows retailers to gain a clearer understanding of how competitors are performing and how to plan for launches and restocks for assortment strategies that allows for maximum profit gains with minimum losses. Leave no room for assumptions and plan your product launch strategies with accurate insight by avoiding the bad and adopting the good.