“Great merchandising, like great value, never goes out of fashion. In a dynamic and increasingly digital apparel, fashion, and luxury market, companies that get merchandising right tend to outperform their peers,” says McKinsey. In their article ‘Great merchandising never goes out of fashion’, authors David Barrelet, Matthew Chapman, Erik Eklöw, Julia Huang, Felix Rölkens and Hannah Yankelevich highlight in current economic environment and uncertainties there is an urgent need for companies to get merchandising right.
Shifting merchandising model
Merchandising is an umbrella term hence, is tough to optimize across its many facets. “About 97 per cent of fashion executives expect their cost of goods sold as well as selling, general, and administrative expenses to rise in 2023, spurring appetite across the industry to simplify assortments and manage costs.” For many executives, the trend echoes their longer-term thinking.
The authors argue, there six shifts in the industry’s merchandising model for decision makers and these are throwing up numerous opportunities. “If they can optimize their merchandising activities to react to these shifts, they are likely to create a playbook that can help them navigate a tough economic environment and set up their businesses for growth.”
The new models
The six shifts put forth by the authors are:
Less is more during economic uncertainty: Ongoing inflation has put pressures and hence the cost of running a fashion business has grown. Therefore, during uncertain economic situations, “there is an urgent need for brands to embrace leaner business models so that each dollar earned, and saved, goes further.” Margin pressures can be reduced by rethinking discounting and promotions. For example, Victoria’s Secret, PVH, and American Eagle, among others, announced pullbacks on promotional pricing.
Consumers demand newness and storytelling: With product life cycles reducing there is premium on newness. Consumers want brand to convey clear brand stories and have a positive impact on society. And brands need to ensure close and early cross-functional alignment in their go-to-market plans.
For example, fast fashion retailer Shein has grown 100 per cent year on year for the past eight years, becoming the second most popular shopping website among America’s Gen Z (after Amazon) and number one in the world for web traffic. What has worked for Shein is about seven days faster than leading fast-fashion players in moving products from concept to customers. Now, other brands are following the same pattern. For example, Nike, adidas and New Balance release new sneaker on a weekly basis.
Sustainability is climbing the agenda: With a more environmentally aware consumer and tougher regulatory policies, the industry is being forced to clean up its act. The authors say, merchandisers have a key role in promoting sustainability. “In response, companies need to reduce waste, prioritize sustainable materials, design for circularity, and ensure a sustainable, responsive supply chain.” They also need to unlock different ways of working, and forge closer collaboration between merchants and their design and supply counterparts through the product development cycle.
Channel dynamics are continuing to evolve: The pandemic saw e-commerce growth with many brands shifting direct-to-consumer (DTC) models. However, post-pandemic, brands need to diversify their channel mix, including wholesale and third-party marketplaces, alongside DTC. “Critical to this is having a clear distribution segmentation, allocating wholesalers and DTC to distinct value tiers and setting the guardrails on multiple dimensions, including the assortment that is offered and the level of investment that accounts receive.”
Data and insights have become a necessity: Data and analytics will remain a key focus area for merchandising with 61 per cent fashion executives saying end-to-end process management will be among the most important investments between 2021 and 2025. The author’s research show, applying integrated digital solutions to merchandising could lead to up to 50 per cent faster time to market, 8 per cent rise in full-price sell through, and 20 per cent decline in manufacturing costs. “It could support in-season pricing and promotions strategy, as well as feed data-driven range planning and optimization. In addition, through new and more granulated customer insights, companies can bring sharpness to their planning and design processes.”
Talent crunch puts pressure on the operating model: “The war for talent makes a well-oiled merchandising operating model a priority. From defining the merchant role as the exciting and business critical role it can be to finding the right balance between core merchandising skills and horizontal excellence functions, the need to act is clear.”