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A Guide to Clothing Inventory Management for Retailers

Published April 26, 2023 Retail
A Guide to Clothing Inventory Management for Retailers
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“Quick summary” If you own an apparel company, you must deal with continuous changes in trends, styles, and customer preferences. Therefore, it's critical to anticipate market trends.

Of course, if it were that simple to forecast customer preferences, everyone in the apparel industry would have been killing it over there. Rather, demand forecasting and appropriate apparel inventory management assist retail apparel businesses in staying one step ahead.

Clothing inventory management presents unique challenges in the apparel business. A disorganized inventory is like a lead weight on your retail apparel company. Whether you like it or not, maintaining good inventory management is necessary to operate your retail business efficiently and, most importantly, to increase profits.

If you are looking forward to a streamlined marketing plan for your retail business, then we have got you covered.

This comprehensive guide will cover the ins & outs of top-notch inventory management.

What is the Importance of Inventory Management in Retail Business?

Effective inventory management is essential for your apparel retail business. According to a recent study by the National Retail Federation, retailers lose somewhere $45 billion annually due to inventory shrinkage. It guarantees that products are available when required and that customer needs are met.

As a result, stockouts and overstocking are less likely to occur, and the companies will have enough inventory to satisfy customer demand. Overproduction might clog up cash flow and result in excess merchandise that may not sell, while stockouts can lead to lost sales and unhappy consumers.

Effective inventory management methods such as demand projections, just-in-time inventory, and secure management of stocks may assist with balancing supply and demand and improve inventory levels. Although the procedure is initially tedious, it will ultimately be worthwhile.

In the apparel industry, properly managed inventories will result in a variety of advantages, including satisfied customers, effective operations, and, most significantly, profitability and growth.

Understanding Clothing Inventory Management

Before hopping on the entire guide on managing your inventory management, let's start with the basics first. To get started, we will be covering what exactly is "Clothing Inventory Management" and some of the different types of materials that apparel store owners need to manage.

Keep reading to know more about different types of materials and the importance of managing them effectively!

1. Definition of Clothing Inventory Management

Inventory management is a broad & complex topic. Before digging deep into curating an effective inventory plan for your apparel business, it's better to clear the basics first.

Retail inventory management involves ensuring you have enough stock to satisfy customer demand and avoid having too little or too much inventory.

Inventory management entails much more than simply managing products. Additionally, it helps in deciding how to order inventory and how much to order, managing storage and carrying expenses so that you can maximize the return on your investment (ROI).

It's of the greatest importance of inventory management for retail business if you want to prevent situations in which you run out of in-demand items or wind up with excess inventory that nobody wants, which results in dead stock and resource waste.

Whether you run a physical store or sell online, handling your inventory efficiently is essential to cutting costs and improving your bottom line.

2. Types of Clothing Inventory

The very first objective of effective clothing inventory management is to ensure that a company has the right amount of stock available(every stock) to meet customer demand while also avoiding excess stock or stockouts. To make this possible, clothing inventory is typically categorized into three types:

  • Raw materials
  • Work-in-progress inventory
  • Finished goods inventory

So, an owner needs to manage all three stocks effectively. Keep reading to know more about it.

(A) Raw Materials

The materials used to make apparel are called "raw materials." For effective inventory management for your apparel retail business, you also need to look after the raw materials apart from finished goods. You need to streamline the sourcing, processing, management, and everything else surrounding it to yield the best possible returns for your business.

You should keep the raw materials apart from the hierarchy of finished products. As finished goods are items that you keep on hand because you want to sell them to customers, but that doesn't mean you should neglect raw materials and their management.

These are quite different, but they significantly affect your apparel retail business. You can optimize your raw materials supply chain and increase profitability by carefully choosing the right suppliers, controlling inventory levels, assuring quality control, and managing expenses.

(B) Work-In-Progress Inventory

Work-in-progress (WIP) inventory is the inventory that is being manufactured and has not been sold yet, which includes items such as clothing that is being sewn, dyed, or printed. WIP inventory has immense importance in setting up inventory management for retail businesses.

To effectively manage WIP inventory in an apparel retail business, it's important to have a clear understanding of the production process and to track the progress of each item as it moves through each stage. You can do this by combining your physical inventory counts and digital inventory management software.

One way to manage WIP inventory is to use a just-in-time (JIT) approach. You can easily reduce the amount of WIP inventory on hand and prevent overproduction, which can tie up valuable resources of your business and lead to waste.

Another way to manage WIP inventory is to prioritize items that are in high demand or have a fast turnaround time. By focusing on these items first, you can minimize the time in the production process and ensure the best results.

(C) Finished Goods Inventory

Finished goods inventory refers to the fully manufactured items ready for sale to customers. These are the products that have completed the production process, passed through quality control checks, and are stored in your inventory until they are sold.

Your finished goods inventory includes all the clothing items that are on display in your stores or online store. Keeping track of your finished goods inventory is essential to ensure you have sufficient stock to meet customer demand, avoid stockouts, and manage your cash flow effectively.

To manage your finished goods inventory, you need to monitor sales trends and customer demand to ensure that you have enough stock of popular items while avoiding excess inventory of slower-moving products. You should also regularly review your inventory turnover rate and adjust your production and ordering processes accordingly to minimize inventory carrying costs.

3. Importance of Accurate Inventory Data

Data and its proper management is always for your business and even inventory management. Accurate inventory data is essential for the smooth functioning of your apparel retail business.

Let's find out more about the benefits of accurate inventory data for apparel retail businesses:

  • End-to-End Inventory Management: Accurate inventory data helps to manage the inventory efficiently. You can keep track of the inventory levels of various products and re-order products as needed. It helps maintain an optimum inventory level, avoiding overstocking or understocking.
  • Seamless Cash Flow: Accurate inventory data helps to maintain the right balance of inventory levels, which helps to improve cash flow. When you have excess inventory, it ties up cash, and when you have stockouts, it leads to missed sales opportunities. You can avoid these situations and manage your cash flow more effectively with accurate inventory data.
  • Better Decision Making: Accurate inventory data provide insights into the performance of different products, which helps to make better decisions when it comes to identifying the best-selling products or increasing the stock levels while also reducing inventory levels.
  • Enhanced Customer Service: Accurate inventory data helps to provide better customer service. Customers can get trendy products, and with proper inventory management, apparel retail businesses can maintain required inventory levels leading to increased customer satisfaction and repeat business.

4. Key Performance Indicators for Clothing Inventory Management

For accurate end-to-end management, you need to choose the key performance indicators that help you manage the stock efficiently while also preventing your business from understocking and overstocking. Every business needs to determine the indicators based on their personalized requirements.

Here are three of the most important ones:

  • Stock-to-sales ratio
  • Sell-Through Rate
  • Gross Margin return on investment

Let's learn more about these indicators and how they can help you manage your inventory effectively.

(A) Stock-to-Sales Ratio

The stock-to-sales ratio is a critical metric for your apparel retail business to understand how efficiently they are managing its inventory. It measures the amount of inventory on hand compared to the sales made during a given period. The stock-to-sales ratio is particularly important for your apparel retail business because fashion trends change quickly, and unsold inventory can become outdated and lose value. So, if you have too much inventory relative to sales, it can lead to overstocking, discounting, and, eventually, losses.

On the other hand, if you have a little inventory relative to sales, it can lead to stockouts and missed sales opportunities, which can also negatively impact the bottom line.

To optimize the stock-to-sales ratio, you need to closely monitor your inventory levels and sales data to make adjustments accordingly.

(B) Sell-Through Rate

Sell-through indicates how quickly your product is moving. If you reach 100% sell-through, you have completely sold out, whereas 0% indicates you haven't sold any. Sell-through has a similar year-round value to inventory change. When making year and season plans, consider inventory turnover. Sell-through will help you maintain core products stocked all year long.

The sell-through rate is a crucial metric for a retail clothing company to assess the efficiency of its inventory sales. It calculates the proportion of inventory moved within a given time frame, typically a season or a month.

By the time their markdown period starts, most apparel stores are anticipating an 80 percent sell-through rate, says retail expert Karim Kanji.

(C) Gross Margin Return on Investment

Even though GMROI is one of the most crucial metrics you can use in your business, it can be a little intimidating. An important metric for safeguarding your financial flow is GMROI. Many apparel retail sellers can safeguard their margins, which is crucial, but keep in mind that you can survive for a while without earnings. You can't survive without money.

Although some of your merchandise turns slowly, it generates high margins. Some businesses will turn rapidly but with low margins. These two scenarios will result in excellent to high GMROI.

A product's low GMROI indicates whether it is moving too slowly, has an inadequate margin, or has both. Fortunately, you can evaluate product success using the GMROI formula. GMROI is usually assessed annually, and you should strive to improve it each year.

Best Practices for Clothing Inventory Management

Effective clothing inventory management is critical for any fashion business to succeed. However, achieving this requires more than just keeping track of inventory levels; it also involves implementing best practices for inventory management.

These practices include setting up an inventory management system, conducting regular stock checks and audits, using the right technology to forecast demand, and implementing best-in-class replenishing strategies, followed by establishing and maintaining the best hygiene as well.

Let's find out more about these best practices and how they will improve your bottom line.

1. Regular Stock Checks and Audits

An efficient inventory count is the most effective method to ensure accurate inventory. Consider destruction, shrinking, and returns when calculating stock levels to guarantee accuracy and avoid mistakes. Retail inventory management software can make this process easier because you do not have to begin from zero; you just need to verify your data.

Regular auditing and counting help you remain informed and avoid running out of stock on a particular item.

The frequency of physical inventory counts in your business depends on the size, difficulty, and type of inventory management system you use. However, professionals suggest counting inventories at least once or twice a year. You can tally using various techniques, such as cycle counts and physical counts.

2. Use of Technology and Inventory Management Systems

You should invest in cutting-edge inventory management software tools and technology and even integrate them with the other tools your company is using if you are interested in streamlining your inventory management for clothing stores.

For example, retail inventory management can profit from this type of integration because when an item is sold in the store's sales area, it is immediately eliminated from stock in the warehouse.

You can also have your inventory management system place automated re-orders as soon as levels fall below acceptable levels. Integration has applications that extend beyond the point of sale. Combining your business services into a single ERP system can help you link different components of your business, such as bookkeeping, marketing, and inventory management.

3. Implementing Effective Forecasting Techniques

Using inventory forecasting to determine your product needs is a wise move. You can better plan your future stock purchases if you are aware of customer demand for a particular product over a specific time period.

Demand forecasting over an extended period of time depends on various factors. However, customer preferences are uncertain.

So, you should use the finest and most effective practices for accurate forecasting.

Here are some of them:

  • To enhance your forecasts, start by keeping an eye on past data.
  • Using a clothing inventory management system offers real-time and more precise data.
  • Forecasting software takes into account all possible unforeseen events and other changes using artificial intelligence and sophisticated algorithms.

The aim of fashion inventory management for a clothing store is to constantly maintain accurate inventory levels, which is made simpler with the right and tech-driven forecasting techniques.

4. Establishing Effective Replenishment Strategies

Effective replenishment strategies are of the topmost importance in inventory management for retail businesses if you are looking forward to staying competitive in today's fast-paced market.

Check out some tips for effective inventory management for a clothing store:

  • Use Data Analytics: Collect and analyze data on customer demand, sales trends, and inventory levels. It will help you identify the most popular items and the best-selling sizes and colors. You can also use data analytics to predict future demand and reduce stock items.
  • Adopt the Right Technology: Consider setting up inventory management software, barcode scanning, and other technology solutions to stay updated and streamline your inventory management process, which helps you replenish the stock.
  • Implement a Just-in-Time (JIT) Strategy: Implementing a Just-in-time (JIT) approach for your apparel retail business can help you reduce inventory holding costs and improve your supply chain efficiency. JIT involves ordering and receiving inventory only when needed rather than keeping large quantities of stock on hand.

5. Maintaining "good hygiene."

Sophisticated order processes, buying, and inventory management software are insufficient to handle your fashion inventory for you. We think it's crucial to maintain good "inventory management hygiene." It entails developing excellent habits and implementing the most effective stock management techniques.

If you are the owner, you should commence by establishing sound inventory management practices throughout the entire organization. Make the first move, and then continue to communicate effectively to your team about setting up inventory management habits. Additionally, let them know how technology can make their jobs easier, more precise, and more time-efficient.

Ensure you have an effective procedure for regularly auditing and checking products.

Common Clothing Inventory Management Challenges

Clothing inventory management is a complex process that involves multiple steps, and despite best efforts, many fashion businesses face common challenges in managing their inventory effectively.

These challenges can range from overstocking and understocking to outdated inventory and poor management, followed by supply chain disruptions. Failure to address these challenges can result in inefficient inventory management.

We will explore some of the common clothing inventory management challenges that fashion businesses face and provide insights on overcoming them.

1. Overstocking

Adding to the material and stock without first selling the ones you already have can seriously reduce your apparel retail company's earnings. Too much stock on board can be just as problematic as not enough.

Any retail company that has overstock may experience problems because it uses up precious resources like space, cash, and labor. Having too much inventory on hand can result in decreased cash flow, higher storage costs, and the requirement for markdowns and sales to shift the extra inventory.

This issue emerges as a result of poor stock control and management. With the best inventory management system in place, you can fix this issue. Automating your inventory management for clothing stores will save you time and money while enabling you to generate sizable profits for your retail apparel company.

2. Understocking

In order to satisfy consumer demand, clothing retailers should always have the appropriate stock on hand. When a product is out of stock, it may result in lost sales and dissatisfied consumers.

Stock-outs may have an unfavorable short- and long-term effect on a customer's company loyalty. Retailers miss out on a sale in the short term, and it's unlikely that a customer will wait around for the item to restock. They will likely turn to another retailer to meet their needs.

Stock-outs erode consumer trust in the long run. Customers will stop buying from you and switch to more dependable vendors if they can't count on you to have the in-demand products you market in the stock.

3. Outdated Inventory

Among the biggest challenges in the apparel retail business is outdated inventory due to changing customer demands and overstocking.

The fashion industry is characterized by shifting styles and consumer preferences. And nobody desires to purchase out-of-date clothing. Therefore, if a company couldn't handle it, it would be burdened with a lot of dead stock, reducing its liquidity and wasting resources.

To solve this issue, apparel companies should utilize analytics tools for demand forecasting that monitor the market and forecast customer demand.

For effective launch planning, they can also use past information. Retailers can invest in the right items and avoid outdated inventory using data analytics.

This unwavering emphasis on data is what originally drove Zara's growth. They used "low-cost just-in-time fashion." This strategy helped them in satisfying their customers by selling trendy products while also limiting the outdated inventory.

4. Supply Chain Disruptions

To effectively manage the inventory for your retail apparel company, monitoring your materials and products from the supplier to your customer is essential. To prevent major issues, you must be conscious of your current and future inventory levels.

  • Do you remember the number and due date for each of your purchase orders?
  • How many items do you currently have on your shelves?
  • How many products are still being manufactured?

You will get a complete picture and end-to-end inventory management for clothing stores if you have complete control over your inventory and are monitoring it in real time.

Automated setting up of an inventory management system with tools for re-ordering, acquisition, cloud-based databases, automatic inventory developments, and real-time data storage to address the issue of real-time tracking and getting error-free results.

Strategies for Managing Clothing Inventory Challenges

Analyzing the common challenges that apparel businesses face while dealing with inventory management is crucial, but overcoming them with the right strategies is the main goal, Right?

By understanding the challenges and implementing effective solutions such as Implementing Efficient Inventory Management Tools, Regular Review and Analysis of Inventory, Clearing Outdated Inventories, Implementing Safety Stock Strategies and even enhanced collaboration with Suppliers and Vendors, fashion businesses can streamline their operations, optimize their inventory levels, and increase profitability.

Let's find out more about the best strategies for overcoming the challenges of effective inventory management.

1. Implementing Efficient Inventory Management Systems

If your business is small, you can initially manage your inventory using spreadsheets or paper records. However, as your apparel retail company expands, you'll be required to spend more time handling inventory, which raises the risk of error by employees and enhances the likelihood that your stock will get out of hand.

Setting up an inventory management application simplifies all of these tasks.

Before making a decision, make sure you are clear on what you require, that a software solution provides the metrics that are essential to your business, and that it is user-friendly.

Long-term success will also depend on how much your inventory management software will cost and what features it will have. Therefore, think carefully before adopting effective inventory management software in your apparel retail business.

2. Real-Time Analysis of Inventory Data

Think about the challenges you'll face if you can't effectively track your available inventory, including being unable to ship the stock on time, causing overstock or understock, and customer dissatisfaction. All of these things will have a negative impact on your company's reputation.

A robust real-time inventory management platform is the solution to this problem.

By adopting a real-time inventory management system for clothing stores, you will not just be able to locate stocks immediately. Still, you will also have full location information and inventory availability with 100% accuracy.

Having such precise and full inventory will enhance your retail apparel business's inventory management cycle while also assisting in cost reduction, increased customer satisfaction, the problem of understocking and overstocking, and other related issues.

3. Clearing Outdated Inventory With Discounts and Promotions

Clearing outdated inventory is a challenge that many apparel retailers face. Still, it's also an opportunity to generate revenue and make space for new products which your customers are looking for. Clearing outdated inventory through the best methods is a cost-effective way to move merchandise quickly and increase cash flow. It allows you to recoup some of your costs while making room for new and more trendy products.

Check out some of the popular ways to move outdated inventory:

  • Offering discounts and promotions are a tried-and-true method for clearing outdated inventory.
  • You can even opt for bundling outdated clothing items with more desirable products.
  • Plan to host a clearance sale or end-of-season sale.
  • Repurpose outdated items into new products or accessories.
  • Offer a limited-time flash sale or discount code.
  • Create a loyalty program or reward system for customers who purchase outdated items.
  • Host a warehouse sale or pop-up shop to clear inventory quickly.
  • Promotions such as buy-one-get-one-free or limited-time offers can also create a sense of urgency and encourage customers to make purchases.
  • Promoting your sales and discounts through social media, email marketing, or other advertising channels can help to reach new customers who might like your outdated stock.

By developing a clear strategy and effectively promoting your sales, you can successfully clear out outdated inventory and position your business for future growth.

4. Implementing Safety Stock Strategies to Mitigate Supply Chain Disruptions

Implementing safety stock strategies can be an effective way for your apparel retail businesses to mitigate the impact of supply chain disruptions.

Here are some strategies that you can adopt to implement safety stock:

  • Safety Stock Policy Is All You Need: A safety stock policy outlines the amount of inventory that a business should hold as a buffer to mitigate disruptions. The policy should take into account factors such as lead times, supplier reliability, and the cost of holding inventory.
  • Use the Right Tech for Tracking: Implementing a real-time inventory tracking system can help businesses monitor inventory levels and identify when safety stock needs replenishment to optimize inventory levels and reduce the risk of stockouts or overstocking.
  • Go After a Safety Stock Formula: A safety stock formula can help businesses calculate the appropriate safety stock level based on factors such as lead time, demand variability, and service level.
  • Evaluate Lead Times: Lead time refers to the time it takes for an order to be delivered once it has been placed. Monitoring lead times can help your apparel retail business avoid stockouts and ensure they have enough inventory to meet customer demand.

5. Collaboration With Suppliers and Vendors

Your vendors are some of your most valuable resources. After all, you wouldn't be able to create or sell goods and make money without them.

Because of this, it's a good idea to inform them of what occurs to their possessions after they leave their possession. You might be able to lock in discounts, lower the possibility of disruptions and quality problems, and set up your inventory management for clothing stores by developing strong partnerships with them.

Ask vendors for specific lead periods and share your sales and product forecasts with them. Maintain regular communication with your suppliers and vendors to strengthen the relationship and obtain consistent supplies. Make a contingency plan to find backup suppliers for your most crucial products in case your main supplier is unable to deliver.

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Conclusion

The fashion retail market presents its own set of issues, particularly when it comes to inventory management.

Producing items at the right moment, in enough quantities to meet demand, at the lowest possible cost, and at the degree of quality your customers require. What an act of balance!

You shouldn't cut corners on inventory management, whether you run a tiny business with a single physical location or a major organization with numerous outlets and warehouses throughout the globe. The good thing is that inventory management provides a high return on investment for a small initial cost.

However, you can streamline your retail garment business by selecting the proper inventory management software and POS system with integration capabilities.

Business owners may find it challenging to select the best solution because there are so many available.

If you are looking for expert guidance in choosing the right inventory management software, then OVVI's professionals have got you covered.