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:
- 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!)
- 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!