As the old saying goes, everyone makes mistakes. From misinterpreting trends to software issues, it’s no surprise some retailers are paying closer attention to their inventory strategy this year.
Fast fashion mega-retailer H&M made headlines in 2018 due to having $4.2 billion in excess inventory, a mistake attributed to the misinterpretation of trends and rising competition in the fast fashion space. The inventory, which was eventually purchased and burned as a form of energy, faced major backlash and criticism.
In early 2019, the company announced their intent to reduce discounting in order to preserve brand value and support the limited amount of inventory owned. Looking ahead, H&M is exploring how artificial intelligence can help them accurately predict fashion trends and reduce their lead time.
Similar to H&M, Under Armour also faced a small mountain of excess inventory to the tune of $1.3 billion in 2018. The cause of this overstock was also related to the inability to keep up with a change in trends—in this case, a shift from performance to streetwear.
The company spent the greater part of the year and early 2019 liquidating the goods which eventually resulted in a 12% drop in inventory levels. These efforts coupled with sales that beat expectations, allowed shares to jump nearly 5% in the early part of the year. Under Armour continues to monitor inventory and trends closely, a matter not to be taken lightly in the ever-changing global fashion economy.
Rent the Runway
Rent the Runway kicked off 2019 by announcing a fresh round of funding at a $1 billion valuation. However, the company soon faced a huge downturn after a software issue caused inadequate inventory levels and lack of order fulfillment. The brand faced major consumer backlash when dresses for special occasions just didn’t show up. They had no choice but to ban new subscribers and limit purchases for special events. They even went so far as issuing lump sums of $200 cash to those impacted to offset the costs of purchasing elsewhere.
To offset the major sales loss associated with the lack of inventory, Rent the Runway has recently partnered with W Hotels in an effort to increase sales exposure by offering pieces for rent on site. Irrespective of this initiative, RTR will need to push the envelope in innovation as competitive threats increase with major retailers such as Urban Outfitters and Express taking on the clothing rental model.
Inventory misses aren’t just for the fashion industry. Fast food chain Popeyes also faced major backlash last summer after they abruptly ran out of chicken just two weeks after the release of their wildly popular hot chicken sandwich.
The company scrambled to restock, watching the window of opportunity slipping away as competitors launched copycat sandwiches. The sandwich did return to Popeyes menus some weeks later, but the company inevitably missed out on a major sales opportunity generated from the $65M media impact. Because of this flop, some may say that Chick-fil-a won that #chickenwar.
Misinterpreting the market or being unprepared for the success of a new product launch can be costly for a business. Whether purchasing too much in the case of H&M and Under Armour, experiencing unexpected technical difficulties like Rent the Runway, or stocking out at an inopportune time like Popeyes, it's clear that less-than-stellar supply chain management can leave businesses vulnerable to big mistakes.