It recently came to public attention that the fashion retailer H&M was left with an excess inventory of $4.3 billion in value, as reported by The New York Times. The clothing company didn’t account for an extreme winter, or any of the other variables that discourages shoppers from visiting their stores. As a result, the fashion brand is experiencing a stock slump, said The Street.
The waste alone from their excess inventory is pretty staggering, but it also demonstrates a much larger issue that H&M and other fashion retail brands are facing. The way people shop is shifting more and more to ecommerce-based online stores and away from physical store locations.
As The New York Times stated, “In the digital era, the challenges around offering trendy apparel before it goes out of style have mounted, particularly as growing numbers of shoppers choose to buy from their smartphones and become more quality conscious.”
That ecommerce shift has been taking place in some form over the last decade, and especially since smartphones came around. But the way clothing companies continue to handle the increasing web traffic (and decreasing foot traffic) is fundamental in staying afloat today. H&M’s business plan, and particularly their inventory management, didn’t adapt well enough to the online demands of the modern shopper, thus the excess clothing inventory and subsequent stock slump.
Other brands similar to H&M, like ASOS and Zara, have focused their efforts on the online market, and have actually seen an increase in their market value. So, it’s not impossible to be profitable in the current market trends, as long as you plan ahead.
As another example, Lululemon, an athleisure clothing company, has drastically improved their online presence by redesigning their website to be more user-friendly. According to Kimberly Chin with Markets Insider, Lululemon has experienced a 42 percent increase in online sales, at which rate they hope to continue this year. By leaning into the new ecommerce market, they’ve successfully adapted, which H&M has so far failed to do. With that kind of growth, they very well could hit their company goal of $4 billion in sales by 2022.
Aside from the retail clothing examples, every business has something to learn from H&M’s faux pas. Creating a business plan that takes outside market influences into account is essential. No one can fully anticipate what’s going to happen in any given industry, but there are plenty of resources that provide useful inventory analysis and forecasting.
While business planning, it’s also vital to properly manage inventory. Joe Scioscia for Manufacturing Business Technology says, “an overstocked inventory is not only time and cost inefficient, but overstocking also takes up precious warehouse space that could be utilized to store products in higher demand.” And if there’s too little inventory, you could lose customers.
To properly manage your inventory and plan for the future, you may need to hire outside help, or find a technological solution.
Whatever the solution, the costs are small compared to a $4.3 billion mistake.