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CASE STUDIES

Inventory holding had become large and was causing cash flow crunch

Issues on hand

This apparel brand had large value losses on account of heavy discounting twice a year and the sales in exclusive shops were falling year on year. Inventory holding was become large and causing cash flow crunch. The brand was concerned with fall in sales, wanted to arrest it and turn it around.

Approach

Sales analysis was carried out to identify the average sales depth for a style in fresh selling months and was contrasted to production lot size. It was noticed that most styles were over produced compared to their fresh month sales and were forced to be discounted heavily to reduce inventory holding at the end of the season.

The exclusive retail channel had various sized formats and the merchandise display & density was not in line with the size of the store. This resulted in poor productivity of floor space and higher cost of sales as the store incurred expenses on a larger size.

Consistent high level of discounts also added to the woes of the brand finding it hard to find regular customers during non-offer time.

All these factors contributed to the decline in sales that was soon becoming a vicious cycle.

Solution

A solution was needed that ensured sales volume was not sacrificed yet discounts were brought under control.

A formal consumer market research assured the brand that regular pricing of the products was not perceived to be high-end or over-priced and paying the price was not a problem at consumer end.
Comparison study of competition showed that competing players had a much larger design range at any given point in time.

Hence an increase in width of designs was proposed and at the same time respective lot size or volume produced for sale per design /item/SKU was brought down. This ensured the total season volume was not sacrificed and the mandate of sales was passed on to more styles/designs than earlier.  Distribution to various points of sale was split among designs, some designs were allocated to certain locations and others had a pick of balance designs of the range. Thus the risk was mitigated across designs without increasing space at the front-end.

The result was that the inventory holding of the brand came down drastically and cash flow pressure eased. Pruning of non-profitable stores on account of being larger than required brought further relief to the cash flow.

In the season that followed, after long the brand showed growth, albeit small, in fresh sales in like to like locations.

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