Discounting is not a Marketing Strategy: Effective Inventory Management Setting strategies for better inventory management to move through stock efficiently will allow your business to remain efficient and avoid falling into a state of panic and reactive discounting.

The rise of e-commerce stores broke down traditional business models and shaped modern-day consumers' need for constant newness. Rather than releasing products on a seasonal basis planned over the course of a year, we are now accustomed to multiple product drops and injections on a weekly or monthly basis to keep up with the demand and sustain customers’ interest in a brand. So how does one know how many units, in what sizes, and in what colours they need to stock up on when new styles are being released constantly?

Brands must consider how to move stock strategically to avoid being stuck with products that become harder and harder to move the more time goes by, resulting in heavy discounts that leave you with less-than-ideal profit margins. The key is to anticipate and predict using data and analytics to make inventory planning as accurate as possible, and following the data during the season to know when to amp up or pull back on certain products.

Retail Analytics Platform, Style Arcade recommends starting with an analysis of the season prior, identifying what you would like to repeat and what you need to avoid. This will provide you with the foundations for the season ahead when determining how much stock you will need.

Making informed and accurate buys is crucial, and by using consumer insights, you can determine how much inventory is needed and avoid having to discount overstocked products. Look at the data to review your business’ strengths & what worked. Analyse sales of your products down to characteristics such as category contribution, brand contribution if you are a multi-brand retailer, price tiers, sizing, colour, and silhouette.

Identify which were strong performers and achieved strong full-price sell-through. Use the information to make informed decisions when buying for the season ahead, and buy deeper into these next season to drive further revenue and profit.

Conversely, highlight those that underperformed - products that you sat on lots of stock of by the end of the season and required heavy discounting, and subsequently, were not as profitable as others.

For clothing retailers, sizing is often a huge downfall and trying to buy without basing decisions on data can leave you with a huge margin of error. Style Arcade reports that profitability for e-commerce business is impacted by 20-30%, just by buying the incorrect size range. It’s worth investing in the tools that can alleviate the guesswork and ensure investment in the right stock.

Ensure you identify other areas of improvement & further opportunities. For example, were you sitting on excess stock of coats last season because you launched it too far into winter?

Plan ahead so you can make adjustments and avoid repeating the same mistakes. Outline how you will stagger out new launches and stick to this timeframe as much as possible to give products an ample amount of airtime before moving on to the next message.

Watch closely to identify what products are selling and at what rate, and use this information to determine what gets promoted on your advertising and marketing channels in order to avoid misusing your marketing spend on products that are not seeing conversion.

Identify strong sellers early on to be able to do a restock where possible and maximise sales of key products. You may also notice certain items being bought together, or a certain style being bought in multiple colourways, which you can leverage in your marketing communications. Using a tool like Style Arcade combines data in near real-time so you don't miss out on opportunities for customer retention and loyalty.

Track products that are creating loyal customers or big spenders, products that are acquiring new customers, and products that are driving customers to spend more. These insights are useful for identifying what kind of customers are currently shopping with you and may want to adjust your communication with them based on this.

For example, you may have a customer who converted for the first time this season by purchasing a black dress for $1000 (your highest price tier) within the launch period. This might suggest they are your ideal customer and have the potential to become big spenders, you may then want to avoid sending them communications around an upcoming Sale or incentivise them to make a repeat purchase.

Monitor the engagement from certain product pages against conversions and wishlist or abandoned cart behaviour, as this may indicate whether a customer is waiting for the product to go on sale before purchasing.

Also watch out for potential threats such as items being bought in multiple sizes, as this may suggest issues around the fit and sizing, or products that have a high returns rate due to faultiness and so forth. You may need to address this during the season and hold the stock until you can adjust this, and also bear this in mind when creating for the next season.

Whilst avoiding in-season sales as much as possible, it may be beneficial to opt for a “clear as you go” approach. Style Arcade suggests using the “CAYG” markdown strategy to identify slow-moving products and begin discounting them early to increase sales velocity and achieve sell-through outside of scheduled sale periods.

For example, you may notice that your footwear offering this season has had a slow uptake, and you may choose to do a smaller discount offer on these specific styles within the season to avoid holding the large amounts of stock for longer during an end-of-season sale, being more and more heavily discounted as the sale period goes on.

Most brands will have a scheduled sale season to make way for new product arrivals. Be considerate of what to do with your aged stock to clear out as much as possible, without cannibalising sales of full-price products. Depending on the positioning of your brand, you may choose to do an online sale, a physical warehouse/sample sale, or opt for a third-party platform that specifically hosts sales for brands.

Online sales are the easiest for brands to do on their own, however, this can also cause the biggest friction against trying to sell your current season stock. Ensure you think about the following: 

• What stock will you put on sale, and at what discount? How will this compare to wholesalers and competitors?
• Consider the timeframe you plan to hold the sale and how you will stagger messaging over the period to sustain interest in the sale - will you be doing further reductions or adding new styles?
• Which channels are necessary for promoting the sale and how will you communicate the sale to work alongside your overall brand messaging?
• Who is the sale being offered to?

Avoid the route of simply throwing all your excess stock onto a sale page and hoping for the best. If you are going to go on sale, make it count.

Utilising data properly can allow you to understand and manage your inventory efficiently, and avoid having to heavily discount products by the end of the season. Planning ahead with this information can help you avoid cash flow issues that result in ad-hoc discounting and promotions to boost sales under a time crunch.

This guide is part of our series – Discounting is not a Marketing Strategy. Read Parts 1 & 3 below: 

PART 1: The State of Retail Markdowns

PART 3: How to Create Value For Your Brand