Inventory management has always been a challenge for luxury brands, with the giant disparity in supply and demand being a constant tussle. In recent years, this issue has grown more complex. Since last year, we’ve seen consumer confidence in luxury goods grow more fragile and macroeconomics challenges rise. From diversifying portfolios to expanding brand paraphernalia, luxury brands are working hard to achieve operational efficiency and provide customer-centric experiences across channels in a smoother way.
On the road to efficiency, many brands are struggling to maintain the right balance in their inventory. Unsold stock, poor visibility, and inefficiencies in demand forecasting are threatening them with more unnecessary costs, brand devaluation, and lost sales. For luxury fashion brands, it’s crucial to stay ahead of the curve with a streamlined, accurate, and data-driven inventory management strategy.
In this blog, we’ll explore a checklist to help address these issues, focusing on protecting brand value while optimizing for profitability.
Landfill of Problems
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1. Storage Costs and Brand Damage: Luxury brands are hesitant to discount their products or devalue their inventory. As a result, excess inventory can accumulate, leading to high storage costs and the potential for brand devaluation.
Business of Fashion reported that the value of unsold inventory for one of the biggest luxury brands, LVMH, grew to €3.2 billion in 2023. Another brand, Kering, saw it grow to €1.5 billion in the same year. If this isn’t alarming, we don’t know what is. Overproduction is a part of luxury brands’ strategies and forms a small part of their overall revenue. However, unsold items can sit in warehouses for months, and disposing it off can become a complicated challenge.
2. Poor Inventory Visibility: The luxury goods market’s revenue amounts to US$473.90 billion in 2024 and it’s expected to keep growing by 4.04%. With these promising numbers come a lot of management challenges. The luxury brands market rests on the pillars of exclusivity and production efficiency. There’s more often and not a significant mismatch between supply and demand as it becomes increasingly omnichannel, with customers shopping both online and offline. Despite continuous efforts to maintain production efficiency, many brands struggle to gather visibility across all touchpoints and channels.
The aftermath? Missed sales opportunities, overstocking in one location, stockouts in another, and a whole lot of mess that negatively impacts customer experience and delivers a giant blow to sales potential. You’re looking at years and years of surplus to maintain exclusivity and control supply, high production volumes, long manufacturing lead times and an air of mystique built to preserve a brand’s image. Visibility gaps exacerbate this, as brands cannot track stock movement accurately across their ecosystem.
3. Difficulty in Demand Forecasting and Stock Replenishment: Accurate demand forecasting is a critical aspect of inventory management. However, luxury fashion retailers often face challenges in predicting demand due to seasonal fluctuations, changing customer preferences, rise in trend-driven shopping, and external market conditions. Where, on one hand, you see stockouts of popular items, there’s an overstock of items that fail to sell, resulting in lost sales or excess inventory.
Inventory Checklist
An efficient inventory management strategy is key to tackling these challenges. Below is a checklist that luxury brands can use to improve their inventory management and ensure smooth flow of sales.
1. Improve Inventory Visibility
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As the above data suggests, the customers are increasingly moving towards multiple channels for their shopping needs. For luxury brands, the ability to track inventory in real time across all sales channels is crucial. Luxury brands’ need for centralized data often clashes with their siloed operations. Integrating online and offline inventory into one system provides complete visibility into stock levels, preventing both overstocking and stockouts.
Action: High-end luxury brands with a lot at stake need a centralized inventory management platform that integrates all sales channels, including physical stores, website, mobile apps, e-commerce platforms, marketplaces, and more. This allows brands to keep a check on stock levels efficiently, track inventory in real-time and make informed decisions on which stock transfers to initiate and how to manage order fulfillment with the goal of achieving 100% accuracy.
Inventory management systems help luxury brands gain full visibility of their stock, enabling better control over product availability. Real-time data updates ensure that stock levels are always accurate, helping brands manage both online and offline channels effectively.
2. Optimize Demand Forecasting
Demand forecasting helps luxury brands plan and replenish stock accurately, ensuring they don’t overstock or understock items. Historical sales data and predictive analytics can help brands forecast demand with much higher accuracy, getting a granular view on what to order based on need, identify purchase patterns and plan promotions based on the insights gathered.
– Action: Leverage past sales trends, market conditions, and external factors (such as fashion cycles and influencer-driven demand) to improve demand forecasting. Use data-driven insights to adjust your forecast in real-time.
Advanced predictive analytics tools provide fashion retailers with insights into future demand patterns, making it easier to forecast stock needs for high-demand luxury items. This reduces the risk of overstocking and ensures that in-demand products are always available for customers.
3. Streamline Replenishment Strategies
Stock replenishment is an absolute necessity for brands to not run out of popular items or have too much excess inventory. A streamlined replenishment strategy helps them stay agile and react quickly to changes in demand. But how do we achieve that for luxury brands that are built on the air of “rare”, “exclusive”, and “hardly available” strategies?
– Action: Implement a replenishment system that doesn’t just thrive on marketing but also takes into account real-time sales data, inventory levels, and lead times. Ensure that your supply chain can quickly respond to changes in demand and replenish stock in a timely manner, especially for in-trend items. For example, mini bags and quirky bags are super in-demand right now and the way some brands have been able to adapt to that should be studied.
Warehouse and inventory management systems automate stock replenishment, adjusting orders based on real-time sales data and demand patterns. This ensures that stock levels are maintained without the risk of excess inventory building up or stockouts.
4. Implement Efficient Stock Liquidation
According to a report, nearly 88% of major fashion brands don’t disclose their production levels. Usually, luxury brands go heavy on production and low on supply. Excess inventory is an inevitable repercussion, but it doesn’t have to be a liability. Luxury brands need strategies to liquidate unsold stock without devaluing their products or hurting their brand image.
– Action: Develop strategies to liquidate excess stock in a controlled way, such as selling via outlet stores, exclusive sales events, or offering items to loyal customers. Additionally, adopting a ‘ship-from-store’ strategy can help you reduce the need for long-term storage.
Ship-from-store solutions help luxury brands sell excess inventory from their stores, ensuring that products are still available for customers without the need to discount heavily. This allows brands to reduce excess stock while maintaining their exclusivity and value.
5. Leverage Technology for Inventory Management
Technology is essential for modern inventory management. Without the right tools, tracking inventory and making data-driven decisions can be cumbersome and error-prone. Too much manual processing can lead to major labour costs, missteps in calculations and missing inventory.
– Action: Adopt advanced inventory management software that can automate and optimize your inventory control processes. Look for solutions that offer real-time visibility, demand forecasting, and automated replenishment.
Inventory management technology helps luxury brands integrate inventory management, merchandising, and demand forecasting into one seamless system. This allows brands to optimize their supply chain, reduce operational costs, and maximize profitability.
6. Monitor and Adjust Regularly
The luxury fashion market is dynamic, and buying preferences can change rapidly. To maintain control over inventory and prevent inefficiencies, brands must continuously monitor their stock levels, assess inventory performance, and adjust their strategies based on new insights.
– Action: Regularly review your inventory performance and make adjustments to replenish popular items or liquidate excess stock. Stay on top of changing market conditions and adjust your inventory management strategy as needed. You can get insights into the best ways to organise your warehouse operations, get the right inventory in front of you and also manage audits without shutting the whole operation down.
Inventory management system allows for continuous monitoring of stock performance. The platform provides actionable insights, allowing brands to make real-time adjustments to their inventory strategies and ensure they are always prepared for shifts in demand.
What Happened When a Luxury Watch Retailer Faced Inventory Challenges?
With an illustrious and exclusive collection of over 40 international and Indian brands, a luxury watch retailer approached Increff with major inventory management challenges.
Problems:
– 195+ stores nationwide, where ever lost sales means big revenue loss
– Unoptimized stock
– Lack of top-seller availability
– Unable to maintain style varieties across store
The retailer used Increff’s intelligent, algorithm-driven Merchandising Software to optimize inventory and sales. They leveraged data-driven insights, reduced sales loss by replenishing out-of-stock styles, ensured top-seller availability, and planned for an ideal assortment mix across all stores for all high value items.
The results?
– 17% increase in MRP sales.
– 24% rise in revenue per day.
– 17% reduction in the gap in the ideal assortment mix across stores.
– 30% improvement in top-seller availability.s
Major Impact:
– Improved sales forecasting accuracy
– Streamlines replenishment strategies
– Optimized stock levels across stores.
– Informed decision-making
– Reduced planning time
– Better inventory turnover
– Better availability of popular items
Conclusion
Inventory management is a complex but essential function for luxury fashion brands. The stakes are high—unsold stock can lead to significant financial losses, while poor visibility and inaccurate demand forecasting can harm a brand’s reputation. By implementing a clear and efficient inventory management strategy, luxury brands can stay ahead of the competition, reduce costs, and maintain their brand’s prestige.
You need an inventory management solution like Increff to get the tools you need to streamline operations, from improving visibility to optimizing demand forecasting and replenishment. With the right technology and strategies in place, luxury brands can navigate the complexities of inventory management and protect both their profitability and brand image.
