Paste your essay in here…In today’s world, the concept of reduce, reuse, and recycle is sometimes left to the wayside in companies across multiple industries and sizes. The idea of corporate social responsibility (CSR) was introduced in the 1950s and focused on doing good for the better of society. Fast forward almost 70 years and the focus shifted from the health and wellness of society, to the health and wellness of the planet. Companies that execute strong corporate social responsibility enjoy many benefits, but it is still that company’s choice to participate. With various outlets available to brands and designers, such as department stores, off-price stores, and sample sales, it is almost surprising to find the amount of deadstock left behind after the product has completed its full lifecycle. The disposal of deadstock inventory does not allow the retail industry to reach its full potential. Eliminating a second-hand use of a product that still contains value, brings down the monetary value of the retail industry as well as the social responsibility value.
Deadstock inventory has made a significant impact on the retail industry. “Estimates indicate dead inventory costs the U.S. retail industry $50 billion a year” (Recer, 2017). In many ways dead inventory can handicap a retailer. Money spent on inventory can be useful in other aspects of the brand or retail industry in general. For example, enhanced systems for calculating inventory needs in real time so there is not a large amount of over production. With product that does not sell after markdowns, retailers have to store these items in their backroom. Retailers do not have the space to continue to hold the unwanted stock. The answer to get the inventory out of these stockrooms is purchasing more warehouse space which a variable cost factor, based on duration. For example, warehouse space in Austin, Texas goes for 85 cents per square foot per month. The estimated operating expenses is 25 cents per sf/mo. The total asking lease rate equals to be a $1.10 per sf/mo. If someone is leasing based on a 5,000 square foot rental, it would be 5,000 times $1.10 equals $5,500 a month. (AustinTenantAdvisors,2018)
There are other multifaceted losses associated with deadstock. A variable monetary loss can depend on if the company borrowed money for inventory or to produce inventory. A current interest rate for a loan can be between about 6.25% and 7.25%. The longer the business has more inventory and has difficulty selling or liquidating it, this can increase interest as time on the loan is delayed. Under loan debt, a company has insurance premiums to pay for the value of merchandise they hold. Retail business insurance depends on the size of the business, whether there are vehicles involved to deliver merchandise. Most insurance companies will bundle premiums that would include workers compensation, business liability, and replacement of product in case of fire or flood. According to Insurance Track, out of Rochester NY, “the average cost can be as low as $250 to $450 per year for business liability insurance” adding business property insurance can “cost as low as $500 per year and up to a few thousand dollars per year depending on the value of the property insured”. (InsuranceTrack, 2018) In many aspects this can affect the business because if they hold more inventory, than the business property insurance will go up accordingly to the value of the amount of merchandise.
There is a new business intelligence tool called Phocas that allows retailers to identify issues by monitoring inventory-to-purchase ratio, stock turns and slow-moving stock. This system will help retailers eliminate deadstock as well as gain a greater margin on slow stock. Some retailers use give away or gifts with purchase to get rid of dead stock. Incentives are ways that consumers buy more to get the prize. It is an effective option to get rid of slow stock and deadstock.
Taking a look at the business model of Zara, they are an extremely efficient and sustainable brand. They are able to design, manufacture, and distribute their merchandise within a 2-week period after it has hit the runway. For most companies it takes an average of 6 months to produce those items. They pride themselves on their timing and production line because they do most of their production in house. This gives them control over the amount, variety and frequency of new products to be readily available for all stores. The company also maintains a lot of control because they will source out cutting and sewing facilities closest to its main headquarters which is located in Spain. Their formula is not producing more than 15% to 25% of the seasons collection. They will design and manufacture another 50% of its clothes in the middle of the season. If certain designs are trending, Zara can produce new styles quickly and are readily available as the trend continues to be strong. Zara prides themselves on the communication from consumers feedback of what their likes and dislikes are through store managers. This data helps Zara forecast what styles are in demand, with the information they obtain, Zara’s designers begin to sketch immediately. They also are very timely on shipping merchandise twice a week to their stores around the world.
Zara does not discount their products much because they are able to sell their items at full price because of the limits of the volume of each style. Zara continuously achieves 85% of full price on their product. This is 15%-25% more than the industries average. Zara’s deadstock is less than 10% while the retail industries percentage is 17%-20%. Zara follows a good inventory business model where they deliver quality and the right amount of quantity based on real time demand in a timely manner. (TradeGecko, 2018)
According to The Cost of Dead Inventory in 2017 they state that “consumers are currently spending less money on apparel”. With brands lowering their stock inventory, this would be a way to bring down the dead inventory in itself and the cost overall. With inventory optimization software, retailers can see the bigger picture where they would have more control over the amount of inventory produced each cycle that are based on real time consumer demand. (do I need to credit the business of fashion here???)
Vetements, a brand that started in 2014, revolves its company around a sustainable philosophy. Their philosophy is to decrease their production. Once their product is stocked, they don’t restock. This company chooses to never over produced their product, so it will never show up in the discount stores which can lead to dead inventory. Producing limited product creates more value and urgency, consumers look upon that with greater value. It makes the company more sustainable.
On a recent study, Harrod’s, the U.K. based department store, used a window display for Fashion Week. The retailer, Vetements displayed a small amount of deadstock in the window. Vetements offered consumers as well as Harrod’s employees to bring their unwanted clothes to the window display. The pile of clothes grew larger and larger each day. “The main point is to speak to people about the problem of overconsumption and overproduction.” said Guram who is CEO of the brand. (Mower, 2018)
The point of the Harrod’s window was that Guram was able to use his platform to speak about consumers who buy clothing and use it once to then throw it away. Guram wants to use his voice in saying that if he or she invest more money into a better performing garment or a better-quality garment then he or she will start to buy less and waste less quantity of dead stock. “I want to sell my things, because I don’t want them to buy a new hoodie every day, but buy it because it’s a nice piece, a quality piece, so they buy less, they buy quality, and they buy for long-term.” Guram said at the end of the month, Harrod’s donated all the clothes to their nearest charity drive. Guram also stated that “For us it is important to make clothes that matter. I want to do things that in 20 years I will look back and say, ‘Okay, I did everything I could. ‘“(Mower, 2018)
Implementing an inventory system to manage their stock showing real time sales and inventory will provide the right amount of product for their stores. Other ways that can help reduce deadstock would be to market a time limit or highlight how much inventory is left so that consumers will want to purchase right away or at least have the urge to. Retailers should give consumers a deal they cannot refuse. If more retailers market and advertise great offers, then it will improve sales.
Other ways the retail industry can recuperate money is to sell the stock back to the supplier. There is a smaller loss on returning the merchandise to the supplier, as the supplier will offer credit for the stock instead of cash. This credit can be used towards new inventory. The additional cost of holding deadstock can add up to 25-30% more than the original unit cost of the product. (Cutwatersolution, 2018)
A counter perspective on deadstock yields few but some advantages. For example, manufactures of fabric can use their deadstock to be repurposed in a productive manner. As more companies become more eco consciousness and green, repurposing of merchandise can be a potential brand enhancer to many consumer conscious customers. A green company can be marketed as such that can attract a demographic of people that align with that philosophy.
Another example of using deadstock in a very productive manner is the brand Alexander McQueen. This brand gifts fashion schools deadstock fabrics to use towards their designs and collections. This is a productive way to inspire a new generation of designers while connecting them to current and past generations of designers. Another advantage of using discarded product is a strategy called upcycling. This happens when deadstock is redesigned to create a higher value product. For example, being able to utilize waste textiles materials can actually extend the life span of that material for more productivity. With the environmental concerns for the country and across the globe, repurposing as much material as possible is a result of new and innovative ways to not only create new designs but to decrease the landfill waste of deadstock.
Upcycling companies have been branching out from the U.K. Many materials overtime decay in landfills and become toxic to the environment. The longtime problem of deadstock over decades, opened up new ideas in the fashion industry to repurpose any waste. As a result of this, more retailers have become more green conscious.
This adds another dimension to corporate and social responsibility as mentioned in the opening paragraph. With old and emerging problems and issues in the fashion industry, this stimulates creativity, problem solving, and technological systems to combat the issues at hand.
In conclusion, with all the additional costs of holding deadstock this can potentially add 25%-30% more of a production of a single unit of merchandise which will be very difficult to ever recoup. (Cutwatersolution, 2018) Deadstock ties up the cash flow. Ultimately, he or she wants to run the most efficient business to prevent cost overruns, manage debt, and control business overhead expenses. Without challenges there is no growth and expansion of ideas and solutions. This too can be a positive aspect of dealing specifically with the issues of dead stock. With the continued improvement of technological innovations for business support, new business models such as a green model, more business will be able to create more sustainability in the retail industry.