How Lean Inventory Helped A Fashion Retailer Improve Sales

Keeping lean inventory in stores has been a critical component to one US fashion retailer’s competitiveness.Urban Outfitters set out two years ago to make-over its entire supply chain, resulting in improved sales and higher inventory turnover.

Initiatives resulted in better initial markups and fewer markdowns. It reaped a 4% overall sales year-over-year increase for the last quarter ending July 31, with comparable store sales up 5%.

Speed, Lean Inventory Were Key

Urban Outfitters in fiscal-year 2016 turned inventory over 6.5 times at 56.2 days in inventory, compared to 4.9 times at 80 days among competitors.

So, what did Urban Outfitters do?

Manufacturing. The brand consolidated parts of its supply chain. It worked with fewer mills, and with factories that were known for speed. Volume orders helped Urban Outfitters negotiate competitive pricing. The company leveraged this consolidation to cut two weeks from its production process (to five weeks) allowing it to bring products to market closer to the sales curve, as CFO Frank Conforti said at a retail conference in September.

Design Cycle. Urban Outfitters switched from a quarterly to a monthly design calendar. The monthly design schedule meant that Urban Outfitters reduced the risk of carrying inventory that would have to be marked down as customers’ interest changed or seasonal SKUs rotated in. It also allows Urban Outfitters to more accurately predict popular styles based on trends.

Allocation. Urban Outfitters significantly reduced the amount of stock held in retail locations. The company now delivers a basic allocation per SKU to each store but waits as long as possible to replenish, based on realtime sales reporting. Products are now shipped where they sell better, reducing the risk of overstocking and selling at a mark-down.

Happier Returns. The company allows for returns of exclusive online items to physical stores convenient to the customer. In the past, Conforti said, theses would “die a mark-down death”. Now, when Urban Outfitters processes an order for an online exclusive item, an algorithm determines if such an item has been returned to a physical store. If so, instead of fulfilling from a distribution centre, it will ship from that store direct to the customer.