Protecting Margins With a Modern, Consumer-Obsessed Strategy

Today’s consumer is far more informed, far more discerning, and has far more choices than just 20 years ago. The rise of e-commerce, social media, and digital marketplaces lowered the barriers to entry for new, innovative and nimble direct-to-consumer (D-to-C) brands, which has made the competitive landscape increasingly crowded. With the ability to now buy just about any product from just about any brand around the globe in a matter of a few clicks, power has shifted from the dominant brands with the largest store footprints to consumers. As a result, the bar to serve them has never been higher.

Yet, most brands still approach strategy, product creation and merchandising the same way they have for several decades: they provide the supply that drives the demand. The result? Lost revenue, missed opportunities, and a staggering amount of waste — wasted time, money and resources.

The Trouble With the Traditional Retail Calendar

For traditional brands, the concept-to-consumer process — from strategy and seasonal direction to new product creation and go-to-market — usually takes 18 months to 24 months. Therein lies the first, most obvious problem. Consumer preferences and trends can change dramatically from the time an assortment is initially conceived to when it’s released two years later. The second issue with the traditional calendar is its dependence on three to five major releases each year, making inventory decisions something that can make or break a brand’s profitability.

Today, U.S. retailers are sitting on roughly $1.35 in inventory for every dollar sold. That’s a lot of money tied up in products and it puts them at considerable risk of having dead stock that may soon join the 60 percent of products that wind up in the landfill within a year of being produced. Furthermore, brands are increasingly missing the mark. Consumer product satisfaction is at an all-time low. Markdowns now represent 40 percent of total retail sales, compared to just 4 percent in 1980.

This seasonal, supply-driven model worked when consumers were heavily influenced by marketing campaigns and window displays because they lacked the tools to easily research and discover products on their own. Clearly, brands today are struggling with both what to make and how much of it to make to meet demand. The protracted timeline makes it difficult for brands to be responsive to current trends and it leaves them vulnerable to unexpected supply chain disruptions, economic downturns, and volatile market conditions. These risks often lead brands to play it safe by making incremental improvements to tried-and-true best-sellers rather than prioritizing the innovation, creativity, and bold, experimental styles required to capture and hold consumers’ attention today.

“The shortening of the whole product development cycle also means companies can give themselves more time to read the market, and with better intelligence develop products that have the highest probability of success, reducing the number of SKUs," said Joseph Phi, group chief executive of Li & Fung. "So this reduces inventory, and then reduces inventory waste. It’s going to be game-changing because inventory [waste] is the biggest cost to the brand owners and retailers as well as [one of the] biggest negative impacts on the environment.”

Brands looking to protect brand integrity, market share, and the environment are transitioning to a consumer-obsessed, demand-driven model that aligns with their newly empowered and informed consumers.

Consumer Obsession: The Cornerstone of a Modern Brand

Consumer-obsessed brands (and those that genuinely want to be) understand that while it’s their job to lead product creation and have a distinct point of view, success also depends on their responsiveness to consumer preferences and demand. They have the humility to admit that merely reviewing historical sales data and tracking trends isn’t enough anymore.

Consumer-obsessed brands solicit feedback from their current and aspirational customers before the strategy is set, products are developed, and assortments are finalized. They put these insights into action and use them to inform both macro strategy decisions and micro decisions on colorways, silhouettes, and more. Consumer feedback and sentiment data are sourced and considered every step of the way to ensure that each item in the line resonates, fulfills a specific role, and SKU productivity is maximized.

Rather than releasing a few big seasonal assortments each year, these brands are increasing efficiency by shifting to lines that are 70 percent to 80 percent seasonless and allow inventory to safely sit in warehouses or on store shelves without risk. The remaining 20 percent to 30 percent of the line is reserved for core products in seasonal patterns, colors, materials, etc., and nimble, iterative and experimental newness that's released in more frequent intervals, often through D-to-C channels first. Finally, these brands source consumer demand data to ensure investment depths align with actual demand before their largest orders are placed.

The Benefits of a Consumer-Obsessed, Demand-Driven Strategy

Replacing supply-driven, two-year assortment development processes with smaller, more frequent releases that are guided by consumer sentiment and demand data has many short- and long-term benefits.

First, it allows brands to capitalize on evolving fashion trends and current events, allowing brands to be more creative, learn quickly, and adapt their assortments with far less risk. Second, it makes it easier to accurately predict demand and right-size buy depths, while minimizing challenges associated with changing consumer preferences, supply chain interruptions, and market downturns. Third, it gives consumers what they want when they want it, reducing markdowns (which cost retailers more than $300 billion a year), which, in turn, improves margins and brand integrity. Finally, from a personnel perspective, leveraging consumer data can help remove much of the subjectivity and competing opinions from the discussion so decisions can be made much faster and without the battle of wills.

Embracing a Modern, Consumer-Obsessed Strategy

Today’s digital, data-rich and on-demand world requires brands to seriously re-examine traditional product creation and merchandising processes and the impact they have on economic and environmental sustainability. Progressing toward a data-informed, collaborative, agile and consumer-obsessed strategy that protects brands’ profitability and our planet is no longer an option.

The journey to a modern, consumer-obsessed strategy requires continuous effort and dedication. A journey that begins with a considerable shift in mindset for many brand leaders, as well as every team throughout the value chain. The saying that “the customer is always right” can no later be limited to store associates and customer service agents. While the customer may not always be right, the sentiment of that statement must be infused throughout the brand, giving customers a seat at the table — in the form of data — and letting their voice be heard.

Shifting to a consumer-obsessed, demand-driven model is likely a brand’s best shot at improving margins through increased SKU productivity, fewer markdowns, and less dead stock — all while reducing waste that hurt the bottom line as much as it does the planet. And that's a win-win for everyone.

Matt Field is the co-founder and president of MakerSights, a product decision platform for retailers.