Ratios: The secret to profitable fashion retailing…

This week I’ve been having conversations with one of my fashion retail clients. We were looking at range planning and how that can be used to drive initial order quantities. The question came up about the level of detail a range plan should break down to, and, where did planning / ordering and stock management at size level come into the process…

The discuss that followed was all about size ratios – which I believe hold the key to successful, profitable fashion retailing. I will explain.

Size Ratios are key to determining the right buy quantities

When working together on the range plan we’re generally considering the style/colour level of detail – we understand for example what the likely rate of sale is going to be for say a pair of navy cotton chino trousers compared to a beige pair or to a pair of khaki linen drawstring trousers. We know, from past experience and supplier insights, from observed trends, and, it is fair to say, a bit of guess work…

Great. So we know a fairly reasonable average weekly rate of sale and thus can determine what the seasonal buy quantity for each style/colour combination, and, what the order phasing needs to be.

That would be fine if were we planning almost anything other than fashion. We’d send the quantity off to the approved supplier and the delivery would appear (ideally complete and on time!) at the agreed destination at some point in future.

With fashion though we have to break down the order at style/colour into a size split in order that the manufacturer can provide the range of sizes we want to present to the customers.

Getting this right at the point of order will impact the entire performance, and ultimately profitability, of the product.

Size ratios impact on your fashion retail profitability.

When you think about it, it’s obvious. Consumers buy at SKU level – that is the absolute item – a style, colour, size combination. Depending on the garment, colours, shape, how fashionable it is, your branding etc…. you will attract a different “typical” shape of customer to different ranges, styles and even different colours.

Keeping track of your past sales performance by SKU will enable you to analyse your ideal future ratios and to advise the manufacturer at what level to apply them (so does a size ratio apply to a whole range or to a style or to a style colour?) – obviously you don’t want to over complicate and get into too much detail BUT you need to get to an appropriate level of detail otherwise you will impact on your profitability.

In a nut shell if you don’t buy enough of a popular size you will sell out, and lose out on potential sales. In addition the item size mix now looks “broken” – I’ll come onto that in a moment. If you buy too many of a less popular size you will have excess stock that you remain long after the popular sizes have all gone!

An interesting observation is that when the size mix looks “broken” – i.e. some sizes are missing – the consumer demand appears to drop off more dramatically than the equivalent sales that are being lost on the missing sizes. It appears that consumers simply don’t buy from an incomplete size offer (this mainly applies to in store). In the end you have only 2 choices:

  1. Buy a specific set of the popular sizes to bring the product “back into ratio” and continue the line, possibly carrying forward to the next season to enable full price sell through (better for profitability, but not ideal if the product doesn’t “belong” alongside your carefully planned next season range!)
  2. Reduce the stock that hasn’t sold – thus losing margin to fund the clearance activity.

Not ideal as all of this simply adds workload to implement actions to deal with a problem that could have been avoided had your size ratio been more accurate at the point of order.

How to better plan your fashion retail range size ratios…

In my view every retailer these days needs to have an EPOS system – not only does it help you analyse performance, track stock and speed up the sales process but it holds the key (pardon the corny image :-)) to everything you need to understand your sales at the lowest level of detail.

EPOS holds receipt level data – thus you will know EVERYTHING about your business… at least if you know what reports you need and how to analyse them.  Using EPOS effectively will unlock so much potential from your retail business – how many transactions per day? average transaction value? are some items regularly bought together? and, obviously, what do my sales tell me about my size ratio?

If you have EPOS and want some help to unlock some of the potential insights held in your data, or, if you don’t have EPOS but recognise you really should be thinking about this for your retail business, let me know…. I am happy to help!

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About Clare Bailey

Clare Bailey, The Retail Champion (formerly Clare Rayner), is one of the most well-known and respected retail experts in the UK. With unrivalled knowledge in retail, high streets and consumer matters, she offers unbiased, independent content – whether engaged as a professional speaker, for broadcast media, or for a written feature. Clare is a business woman, entrepreneur and founder of several small businesses. Having been born into a family of successful business owners, it was inevitable that she’d eventually jump off the corporate treadmill and step out on her own! Today her brand portfolio includes The Retail Champion, The Retail Conference, the Future High Street Summit and the Support for Independent Retail campaign. In addition, she is co-founder of Mobaro Retail UK and a non-exec director of Beed Virtual Assistant Services. Having started her career as a fast-track store management trainee for McDonalds, she went on to work with leading retailers such as M&S, Dixons and Argos. She moved swiftly into management roles before being headhunted into senior consulting roles with global software giant SAP, and international management consulting brand, Accenture. Her corporate background in senior retail, consulting and technology roles, coupled with her experience of creating and running her own business, has enabled her to be equally capable whether consulting to global brands or micro businesses. This unique blend has not only positioned her as a leading expert in all things retail, but has enabled her to add meaningful commentary and insight to the debate around the future of the high street, and, how technology is driving fundamental change in the way consumers, and businesses, interact. Clare has become an influential voice in her field, which has resulted in her becoming a regular media contributor and sought-after conference speaker. Often seen on Good Morning Britain, BBC Breakfast, Sky News, and Chanel 5 (to name a few), Clare speaks on a myriad of retail, high street and consumer issues – but is particular adept when it comes to explaining the context behind retail trading results, newly released data, and government stats, in a palatable and informative manner. In addition to broadcast and conference speaking, Clare is the proud author of two best-selling business books published by Kogan Page - The Retail Champion: 10 Steps to Retail Success, published July 2012 and How to Sell to Retail: The Secrets of Getting Your Product to Market, published February 2013. She has provided contributions to various academic texts, including Retail Marketing Management (published by Pearson). With an engaging, conversational yet informative style, Clare writes for press and content agencies, providing features, articles, blogs and opinion pieces as well as contributions to white papers and reports. However, when the situation demands a more serious style, Clare can deliver - In 2016 she wrote an extensive report for a major insurance and risk law firm, as a retail expert witness, to support a public liability suit. She found that project particularly enjoyable as it played well to her strengths – assimilating large amounts of data and information, identifying the key points and articulating that in an understandable manner. When not on TV or speaking at conferences, Clare’s “day job” sees her supporting consumer-facing businesses through her consultancy services. When asked to describe what she most loves about retail consulting it is typically the opportunity to “dig deep”, getting “under the bonnet”, in order to leverage the business data to uncover the insights that lead to “lightbulb moments”. She also loves working on business change programmes that centre on improving the processes and systems to increase profitability by supporting more rapid, better informed decision making, improving the customer experience, or simply by become more efficient and streamlined. In this respect she considers herself a “business engineer” with a brain that works like a relational database! Due to her years of experience, her logical, objective approach, her quick, rational thinking, she is known for being able to cut through complexity, seeing right through to the crux of issues, finding creative solutions that others may have overlooked. As if all that wasn’t enough, Clare is a working mum, juggling a home life in rural Lincolnshire with her partner, their 5 kids, 4 cats, and geriatric Labrador! For all enquiries, contact Clare directly on 01727 238890 or email champion@retailchampion.co.uk.
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3 Responses to Ratios: The secret to profitable fashion retailing…

  1. Jose says:

    Totally agree, but how to determine what the correct size ratio should be is the follow up question. Do you aggregate all the SKU sales history for all colors in order to find the optimal size ratio for what one would call a fashion basic (classic chino pants) ? Or do you do it at the category level for casual pants to get a bigger slice of data from which to determine size ratios?

  2. Clare Rayner says:

    Hi Jose
    I would say it is an iterative process. I would use EPOS data to show me (without allowing assumptions to lead me) which style/colours demonstrated a similar size sell ratio when they were all in stock… Using this I don’t need to be bogged down with wondering about reasons why (fit, colour, fabric, fashion-ability) I just need to know these are the facts as demonstrated by the customer.
    This is pretty much my rule with all things where data exists – rather than try to second guess answers, falling foul of assumption, allow your data to reveal the truths.
    Hope that helps!
    Clare

  3. sriyogamitra says:

    Clare is absolutely right, in our EPOS, our size ratio tells us to buy 10 in different mixes of S, M,L XL. when you buy 12, you sell thru is off by 80% straight away.

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