Why Is Demand Forecasting So Difficult...???

Why is it so damned difficult to forecast demand in the apparel business…???? Why can’t apparel retailers do a better job of seasonal conversion…???? Why do so many apparel retailers have so much unsold seasonal inventory at the end of each season…???

Because the one-word definition of fashion is “change”.? Which means that pretty much everything is always a moving target.?

Because “seasonal fashion” means change is happening on multiple levels, continually.? Seasons change.? Fashion changes.? Different places need different content at the same moment in time.? Seasonal conversion is incredibly difficult to manage. Solutions that work in Boston during October and November won’t work in Miami.? Exit dates are as important as entry dates.? Minimizing end-of-season residue inventory is critical to maximizing margin.

Because data has a shelf life, just like products do.? Style-level data on replenishable Basics can accurately predict demand months to a year out.? Some style-level data on Seasonal Key Items can predict performance for a full season.? And style-level data on Fashion and Novelty products may only be meaningful for several weeks to several months.?

Because the Time/Action calendar to reorder already designed product makes it almost impossible to react in-season to early sales trends.? So, an entire season’s worth of inventory must be purchased up front.? LY data is going to give pretty good guidance at the category or classification level for projecting an Open-To-Buy number for next year.? But projecting demand at the style level on all newly designed products is going to migrate into “guessing” territory very quickly.? Known preferences for different color families will provide some guidance, but there are so many other design variables that ranking demand at the style level becomes extremely difficult.? That’s the hard truth that needs to be embraced.? Enthusiasm is not data.? And enthusiasm for freshly designed products is the intoxicant that often leads to over-buying.

OPEN-TO-BUY is the mechanism for a retailer to forecast demand over the full range of their product offering.? It’s the mechanism for setting realistic goals and establishing boundaries for sales, inventory, turnover and margin.? All the number crunching gets bundled up into one very straightforward model.? The goal is an ongoing FLOW of 5R content, and that means there are LOTS of moving parts that must mesh WITHIN THE TOTAL.

Right Product immediately gets into managing for RISK and STORYTELLING.? I submit that the business can be modeled in 4 layers of RISK, Seasonality, and Fashion. ?The opportunities for differentiated storytelling increase as the level of fashion, novelty, and risk increases.

These four levels of fashion and risk then fall very naturally into four levels of seasonality, and therefore four levels of shelf life.? And the shelf life of the product correlates to the shelf life of the sales data of that product.? Sales data on seasonless basics form the basis of predicting demand in next year’s comp window.? Sales data on seasonal fashion can be predictive at the category level, but probably not at the style level.? After all, next year’s seasonal fashion will be newly designed, so the styling attributes of this year’s best sellers may or may not carry forward into next year.?

Now let’s put some pictures in place of the descriptors and you will quickly be able to see how the range of risk and storytelling escalates across the range of products.? And also, how quickly the opportunity to differentiate escalates across the range of products.? There’s not a lot of opportunity to differentiate from other brands in the green boxes.? (Although Ralph Lauren could use color more aggressively than other brands.)? There are abundant opportunities to differentiate in the orange and red boxes.? But those are higher levels of risk with attending higher levels of markdowns and lower maintained margins.

A range of shirts from Ralph Lauren:

And a look at the same thought process from American Eagle Outfitters denim:

And finally, a range of tops from Lilly Pulitzer:

One of the lessons from denim and novelty tops is that the seasonality is not so much weather driven as it is level of fashion and novelty.? At that level, customers quickly tell you whether they like it, or not.? On-trend fashion product is going to sell quickly and off-trend product is going to require quick markdown action.? Either way, the life span is limited.?

I said earlier that projecting demand can quickly migrate into the realm of guessing.? That’s another way of saying how data can, and can’t, drive the product development and design process.? It comes down to understanding the “why” of a product’s performance.? What are the product attributes that make it a best seller?? What is the designer building on when they go to replicate a best seller into new developments?? Fabric?? Color?? Trim?? Fit?? And even if they know the “why”, how long will that “why” be valid?? Will this year’s “why” still be valid a year from now, when the newly developed product finally hits the floor? ?No?? Now we’re guessing.

So, data can indeed be a driver, an accurate predictor of demand at the more Basic and Key Item level of the business.? But as soon as the product ventures into the fashion and novelty domains it is less about data and more about fresh new design.? Data on TY designs will not necessarily be a good predictor of demand, at the style level, the following year.? Which begs the question of how meaningful data can be injected into the design process for fashion and novelty products.? In order for that to happen, we need a whole new Time/Action calendar process.

These next two slides summarize the complexity of all the moving parts and how they vary at the different levels of risk, fashion, and seasonality.? It’s important to point out that seasonless predictability in Basics means high maintained margins but ZZZZZ storytelling.? The WOW storytelling lives out in the high-risk products, along with lower maintained margins. ?It is the skill with which the whole portfolio is put together that results in both great storytelling AND solid profitability.

The summary below bears out the profitability of the Basic and Key Item levels of the business and the lack of profitability at the fashion and novelty levels of the business.? BUT…the fashion and novelty levels of the business are the home of the brand’s distinction and differentiation.? Without that distinction and differentiation, profitability at the undifferentiated, low risk end of the business would not be possible.? Period.? End case.? So, the FULL RANGE of the risk spectrum is required.

If you have read this far, THANK YOU! And now you know why, indeed, it is so damned difficult to forecast demand in the apparel business. BUT...as one of the editing steps, if fashion and novelty were embraced as RISK, and not, "Oh my gosh, it's beautiful! Everybody is going to LOVE IT!", then the final curated assortment might still tell a great story but be more profitable and end the season with less unsold inventory. Inventory that will be sold at deep discounts or be packed up and sold to the off-pricers.