Inventory Report 2022

INVENTORY

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THE SELL-THROUGH

Amazon’s Rivian Fleet Expands

■ RIVIAN AUTOMOTIVE INC. continues to make good on its agree ment to deliver 100,000 electric delivery vans to Amazon.

Amazon said in November it continues the rollout of the electric delivery vans made by Rivian, now counting more than 1,000 of the ve hicles in more than 100 U.S. cities. That’s up from the more than a dozen cities the official rollout launched with in July.

The delivery vans had been piloted by select drivers since 2021 to test their performance and refine the operating system installed in the vehicles, called FleetOS.

ATTABOTICS NABS $71.7M TO REVAMP WAREHOUSE WORK

Warehouse robotics company Attabotics is no longer a startup with a couple of em ployees working in a room. A new round of funding speaks to that evolution.

Attabotics, based in Calgary, recently closed on $71.7 million in Series C-1 funding. The raise was led by Export Development Canada (EDC) and included the Ontario Teachers’ Pension Plan Board’s Teachers’ In novation Platform.

The funding brings Attabotics’ total raised to date to $165.1 million.

“We started six-and-a-half years ago with an idea. We’ve been developing the idea, commercializing the idea. Now, it’s time to grow the idea,” CEO Scott Gravelle said in a call with Sourcing Journal. “At each stage of the company, we’ve looked for the right kind of support for the stage that we’re at.”

Put simply, Attabotics is continuing to grow and the funding will help with that expansion, Gravelle said, even as funding slows in line with the broader economy.

Guillermo Freire, senior vice president of EDC’s mid-mar ket group, said “forward-thinking” Attabotics has built tech nology that helps to “address global supply chain challenges.”

Attabotics, which counts about 300 employees, touts a warehouse system that’s built vertically, where storage units are serviced by robot pickers. Those robots then shuttle product to stations where humans work. Attabot ics said its technology allows companies to cut their ware house footprints by as much as 85 percent.

The company in September hit a milestone with the re lease of the Attabot 2022, the first commercialized version of its warehouse robot. — Kari Hamanaka

Amazon said the expanded electric vehicle delivery service now includes cities such as Las Vegas, New York, Austin, Boston, Denver and Houston among others.

The Rivian-made electric vans have so far delivered more than 5 million packages, according to Amazon Transportation vice president Udit Madan. The executive called the expanded reach “just the beginning.”

“Fleet electrification is essential to reaching the world’s zero-emissions goal,” Rivian chief growth officer Jiten Behl said in a statement. “So to see our ramp up in production supporting Amazon’s rollout in cities across the country is amazing.”

Amazon, which holds about an 18 percent stake in the vehicle maker, was an early investor in Rivian prior to the company going public.

Its delivery van order is also the first commercial deal signed by Rivian. A memorandum of understanding to jointly produce electric vans with Mercedes-Benz was inked more recently in September. The automotive company also makes consumer vehicles, with its R1T truck and R1S sport utility vehicle.

The Amazon order includes 100,000 vans, which would help the e-commerce company in its pursuit to being net-zero carbon by 2040.

Those efforts aren’t limited to the U.S.

Amazon said in October it would pump over 1 billion euros, roughly equivalent in dollars, into electrification and decarbonization efforts around its European transportation network. The investment will see a boost in electric delivery vans, e-bikes and delivery on foot with the help of what it calls “micro-mobility” delivery stations located closer to end consumers.

Rivian said it has fielded inquiries from users of larger fleets, which CEO RJ Scaringe said the company does have the ability to eventually accommodate.

“While production lines are ramping and we are delivering as many vehicles as we can to Amazon, we have started those sort of long-cycle discussions with some of the very large fleets,” Scaringe told analysts during the company’s second-quarter earnings call. “And they are certainly making sure that as these larger fleets beyond the last mile… as they start to plan their path to being fully electrified, that we are supporting that planning, but also of course, embedding ourselves into that planning.” — K.H.

ROBOTIC SHUTTLES CONCEALED BEHIND GLEAMING WHITE TILES FETCH PRODUCTS

INVENTORY INSIGHTS: Lessons Learned and Optimization Opportunities

SARAH JONES

One of the biggest risk factors in retail right now is inventory.

Over the past couple of years, demand has repeatedly re versed, leaving merchants with either merchandise deficits and missed sales or a glut of unsold goods. As omnichannel shopping patterns have picked up, having the right stock in the right place is crucial for capturing consumers’ dollars.

Sourcing Journal asked key industry exec utives to weigh in on the biggest challenges in inventory management, as well as the ar eas to focus on for potential improvements.

the industry bought further out and deep er to mitigate risk. Unfortunately, the de cline in consumer demand has left inven tory levels extremely high and is negatively impacting margins.

Related to inventory management, what has been the best decision made or action taken by Pacsun in the last year?

Pacsun aggressively adjusted our invento ries to match demand in the current en vironment. We started out with YOY in creases in inventory but liquidated excess inventory and adjusted receipts to align our inventory position with demand. We are in a position to chase inventory if demand ex ceeds expectations.

MICHAEL RELICH, Co-CEO, Pacsun

What should be the industry’s top lesson from 2022?

Plagued by the supply chain delays of 2022,

Looking ahead at 2023, what solution has the most potential to improve retail operations?

With business increasingly becoming om nichannel with ship-from-store, buy-on line-pickup-in-store, local delivery, etc., in ventory accuracy is paramount to leverage

inventory to the last piece, lower shrink, drive margins and provide excellent expe rience. RFID, which has been around for over a decade without significant adop tion because of questionable ROIs, now has a quick return given the use cases that the world-class omnichannel experience requires. RFID is getting a second look by many retailers and adoption is increasing given the ability to significantly improve re tail operations and profitability.

counts when you sell. Merchants can poten tially see a huge return by investing in an easy-to-use, cloud-based POS and system of record they can access from anywhere. And when you consider the issues today around labor cost and availability, these tools help you do more with less, freeing up time for business owners and their employees to fo cus on other aspects of their operation.

What has been Lightspeed’s biggest achievement this year?

JP CEO,CHAUVET,Lightspeed

What is the number one mistake you see companies making when it comes to inventory management?

Ordering with their gut rather than making data-based decisions. If they don’t have a ref erenceable system of record, or they have a system of record but it is unreliable, they can find themselves in trouble.

Annual inventory counts or no inventory tracking means merchants risk making cost ly decisions when they order stock that they didn’t need and create dusty inventory they will need to discount to sell. Being on top of how much inventory you have and how quickly it’s actually selling will mean you or der enough to never miss a sale, but not so much that you end up having your capital invested in stock that won’t move. Having a system of record which you can trust—be cause the inventory is up to date—will give you a better chance to make confident deci sions using that system.

If a company doesn’t have the dollars to invest in technology for all areas of opera tion, what is the most urgent area of focus?

A trusted system of record is one of the most urgent areas of investment because it gives a true baseline reflection of what’s going on in your business. For retailers, that’s a POS and inventory management system which fundamentally tracks how much inventory you have and automatically decreases those

One of Lightspeed’s greatest achievements this year has been the launch of our flagship products for retail—including e-commerce and B2B—and hospitality businesses, each with built-in payments integrations. We have taken the greatest features of the prod ucts from our acquisitions and amalgamat ed them under these flagship offerings. We are now prepared better than ever to help our merchants around the world provide an exceptional omnichannel experience for their customers.

NIKKI BAIRD, Vice President of Strategy,

Aptos

What is the number one mistake you see companies making when it comes to inventory management?

They work at too high of a level of aggrega tion. For example, they may look at inven tory levels across “toys” or even at a class level of “action figures” or “Power Rangers.” They could look at Power Rangers and think they’re good, but the aggregate hides that they’re completely out of everything related to the Pink Ranger.

They need to look at inventory at a much more granular level. But that takes either more people or more automation and intelligence, and an investment and commitment to make that happen. And sometimes, other than walking the floor and seeing where they’re in stock and out of stock, they may not even be aware they have a problem.

What has been Aptos’ biggest achievement this year?

Helping our customers keep up with ram pant growth in their omnichannel business. E-commerce sales flattened out as consumers returned to stores, but omnichannel sales— whether BOPIS, ship from store, or in-store save the sale—just continued to grow like it was 2020. It meant having to bring a combina tion of our software and technology expertise to bear, but also serve more in a consulting role to help our customers adjust their strategies and how those strategies were implemented in our OMS solution to help them keep up.

What is the main challenge to better adop tion of retail tech by the fashion industry?

Fashion companies are brand and product people at heart. Probably the biggest challenge is getting a whole company of those people to care about technology. For a lot of other cate gories, companies overall recognize that tech nology is strategic to the business; with e-com merce, you can’t sell anything without tech. But in fashion, fit slowed online sales—and drove a lot of unexpected costs with returns—so it has taken longer for non-tech people to understand that they don’t have a future without tech as an enabler, rather than a cost to be contained.

their tech stack, and they’ll have benefits like streamlined processes, cost savings and scal ability. That’s why Loop offers many of the top 3PL integrations, to ensure brands can easily implement these benefits across their entire customer journey including returns.

What has been Loop’s biggest achievement this year?

More than doubling the impact we’ve had on our brands. This time last year, we’d pro cessed 8 million annual returns. Today, that number is closer to 20 million. And we’ve gone from $310 million in retained reve nue to over $900 million—a huge benefit for brands trying to improve their reten tion rates and repeat sales. This is a clear indication that even during an economic downturn, Loop continues to empower the world’s most-loved brands like Allbirds to re duce costs, increase revenue and help deliver on their ideal post-purchase experiences.

Looking ahead at 2023, what solution has the most potential to improve retail operations?

TASHA REASOR, Senior Vice President of Marketing, Loop

Not leveraging a third-party logistics solu tion (3PL). Rather than manually tracking down items for each order, brands who use world-class 3PLs like Whiplash will enjoy the benefits of seamless order fulfillment. Most 3PLs can handle physical logistics like warehousing, inventory management and shipping, which alleviates a ton of work for brands. Leveraging a 3PL means less time and money is spent on manual tasks that can otherwise be outsourced and automated.

Brands can easily implement 3PLs into

We’re starting to see a shift of digitally na tive brands like LSKD and Hush expand to physical stores. Shifting from e-commerce to true commerce is no easy task. There’s no one-size-fits-all playbook, and brands can’t simply take their existing digital experience and expect it to work as a brick-and-mortar strategy—especially knowing that tradition al in-store experience expectations have also changed. This means brands have to reimag ine how they think about the in-store ex perience from a variety of angles, including checkout processes, logistics and returns.

Long gone are the days where brands can open a physical store, throw up a bunch of racks, and plaster discount sales graphics across the store. The bar for in-store shop ping has been raised. Customers are looking for more personalized, curated experiences that reflect the brand.

This will require intentional consolida tions and efficiencies across a wide range of processes, which will only be possible by creating thoughtful, strategic initiatives that consider the bottom line and the customer experience equally. And selecting the right partners to see these visions come to life, too.

What is the number one mistake you see companies making when it comes to inventory management?

SONIA PERES, Global Senior Director

Strategies,Industry Blue Yonder

What should be the industry’s top lesson from 2022?

Set up an agile supply chain that will enable you to navigate disruptions. On-demand sourcing led by artificial intelligence and machine learning forecasting capabilities will become critical to ensure you have the right amount of the right product in the right locations when demand shifts based on consumer behavior.

A combination of nearshore and offshore sourcing is essential to fulfill demand when the supply chain is faced with disruptions. Real-time tracking and tracing is key to giv ing you that flexibility of knowing when you will need to shift fulfillment to nearshore, as the cost of not having the product avail able when the customer demands it far out weighs any reduced costs or additional sav ings from sourcing offshore.

What is the main challenge to better adop tion of retail tech by the fashion industry?

Fashion, being an artistic industry, has tra ditionally been led by trends launched by trendsetters and the rest followed. The Covid pandemic brought an abrupt end to that with the fashion industry being forced to adapt to swift customer behavior shifts, which radically accelerated digital transfor mation, and it will not stop just at how the customer interacts with the fashion retailer. To remain relevant and maintain market share, the fashion industry will have to crit ically look at its end-to-end operations from designing and producing products to its sup ply chain, managing inventory and prices.

The era of blending art with science is upon the fashion industry, and there are three challenges to better adoption: focus ing on a balance of agility and efficiency; introducing AI/ML and trusting science to predict the future and not relying on “gut artistic feeling”; and fashion retailers should spend more time and focus on the state of their data quality and attributes.

What has been Blue Yonder’s biggest achievement this year?

The many implementations of our best-inclass omnichannel order management mi cros services including inventory visibility, commits and order services. Customer-cen tric experiences require more intelligence than ever before to engage customers and deliver the right product, through the right channel, with the speed and convenience that consumers expect. Blue Yonder trans forms order management (OMS) with an augmentative, microservices-based ap proach, which delivers the rapid time-tomarket, scale and performance businesses need from inventory availability, order or chestration and fulfillment.

DAVID SOBIE, Vice President, Happy Returns

What should be the industry’s top lesson from 2022?

Consumers have options when it comes to where, when and how they can shop. They are prioritizing brands whose values align with their own, ones with a simple and intui tive e-commerce experience, and increasing ly placing a focus on the post-purchase and returns part of the shopping journey.

Consumers prefer box-free, in-person returns as their number one method when returning online purchases. In simple terms, consumers will not tolerate the hassle and wait for returns by mail, which had been the default option for online shoppers.

What has been Happy Returns biggest achievement this year?

Our announcement in March that our re turn portal software is available for free to any merchant who uses PayPal checkout.

We now have over 500 retailers who use our software and reverse logistics ser vices and have grown our network to over 5,000 locations, where shoppers can drop off box-free, in-person for an immediate refund or exchange.

Improving returns has the most potential to improve retail operations next year. Im proving the shopper experience has the po tential to increase customer lifetime values and improve retention. Enabling returns to a third-party network has the potential to re duce return costs by up to 40 percent versus returns by mail and improve sustainability by reducing shipments and cardboard waste through aggregated shipping in reusable totes rather than cardboard boxes.

According to Zebra’s recently issued 15th Annual Global Shopper Study, the top mo tivating factors for retail consumers in both online and in-store channels are product availability and product selection. In short, having a product that a consumer wants is the most fundamental reason for a retailer to exist. But it’s hard to upgrade everything all at once, especially with recession fears and potentially limited investment dollars.

Retailers should invest in systems that augment an existing capability. A great ex ample is Zebra’s Antuit.ai, a long-term de mand-sensing product that brings AI and machine learning to existing retailer forecast ing tools, helping make complex and volatile projects more accurate with no need to re place the existing demand product.

For every new capability that retailers con sider, there is one fundamental initial ques tion: build, buy or partner? For years, there were compelling arguments for building in-house, and this is often the first impulse for retailer IT departments. It’s believed that the specificity of the needs and the flexibility and ownership for this option provides an offset for most downsides.

However, the calculus has changed. To stay competitive now, nearly all retailer tech nology systems need to connect with com mon data sources and protocols, be scalable from one part of the enterprise to the whole organization and be suffused with artificial intelligence (AI) and machine learning from top to bottom. And, of course, have orders of magnitude higher levels of up-time, per formance and security than even just a few years ago. This tension is highlighted specifi cally in inventory, where for most companies a patchwork of disparate hardware and soft ware solutions give batched and incomplete views for most products most of the time.

If a company doesn’t have the dollars to invest in technology for all areas of operation, what is the most urgent area of focus?

Filling retail jobs remains challenging today. However, the single biggest thing a retailer can do to improve efficiency and retail associate satisfaction is to lean in heavily to human-cen tric automation. This can be as small as auto mating task management to make it clear what the next best action is, or as big as robotics to help associates restock shelves after hours.

CHARLES GRIFFITH, Chief TechnologyOfficer, QuietPlatforms

Inventory management and supply chain visibility are must-haves. In 2022, we saw a continuation of supply chain challenges, and for the retail industry, the lack of visibility topped the list. Retailers were impacted by poor visibility and forecasting of inbound in ventory early in the year, leading to shifts in call dates and heavier inventory purchases. As the year progressed, supply chains settled into patterns that were more traditional— and too many goods arrived too early, leav ing retailers with more supply than demand. For many, that led to heavier promotional activity to clear the excess. In short, retail ers with greater visibility and more dynamic supply chains were the winners this year.

Looking ahead at 2023, what has the most potential to improve retail operations?

MATT GlobalGUISTE, Retail Vertical Marketing Lead, Zebra Technologies

What is the number one mistake you see companies making when it comes to inventory management?

What should be the industry’s top lesson from 2022?

What has been Quiet Platforms’ biggest achievement this year?

Quiet Platforms has provided the flexibil ity, technology and infrastructure to help many customers effectively navigate a very disrupted supply chain environment and de liver shipments to customers faster and with lower cost. In 2022, Quiet Platforms also launched two new technology services.

The Quiet Visibility Platform solution provides end-to-end visibility for inbound and outbound movements across the plat form, enabling retailers to make better de cisions earlier. Quiet Inventory Apps is a suite of tools that enable retailers to monitor and automate key inventory placement and movement activities. The solution addresses geographic product assortment and inven tory quantities across the network, offering a dynamic view of inventory health across locations and ensuring inventory gets to the right place at the right time.

Looking ahead at 2023, what technology has the most potential to improve retail operations?

Serving an evolving consumer requires more advanced supply chain capabilities that are packaged for ease of use. Consumer prefer ences are constantly evolving. For example, demand for day-definite home delivery is increasing even as shoppers also show re newed interest in shopping in-store. That means retailers must solve for the complexi ty of a more dynamic environment that leads to higher costs and more cumbersome pro cesses. Quiet Platforms’ focus in 2023 will be taking on this challenge and providing the tools retailers and brands need to place inventory appropriately, move it at low cost, and respond to consumer demand, wherever it exists, across retail channels and geogra phies. By leveraging machine learning, Qui et Platforms will help accelerate and orches trate decision-making across the network

while providing retailers with simplified operational and reporting interfaces to track and drive their supply chain performance.

JOHANNA Co-Founder,SMÅROS, Relex Solutions

What should be the industry’s top lesson from 2022?

Retailers and consumer goods brands need to leverage data and technology to drive agil ity. The impact of extreme weather events, geopolitical tension and macroeconomic de velopment are impossible to predict, which means that companies need to plan for dif ferent scenarios and be able to react effec tively to changes in the market.

What has been Relex’s biggest achieve ment this year?

We are proud to have been instrumental in helping our clients navigate supply short ages, capacity constraints, rising costs and changes in demand to maximize consumer satisfaction at the lowest operative cost. This has resulted in best-in-class customer reten tion and customer satisfaction, in addition to 40 new clients choosing Relex despite the turbulent business environment.

Looking ahead at 2023, what technology has the most potential to improve retail operations?

Instead of looking for one silver bullet tech nology, retailers need to ensure that their planning and execution are unified across merchandising, supply chain planning and operations. This is imperative to drive ef ficiency and adaptability in a constantly changing market.

Inventory Issues Foreshadow Tough Holiday Season

THE COMBINATION OF AN OVERABUNDANCE OF GOODS AND A LACK OF FRESH MERCHANDISE WILL WEIGH HEAVILY ON MARGINS.

VICKI M. YOUNG

Much has been written about the need for retailers to do a better job at learning from their past inventory mis takes. Another, more subtle, aspect of the issue is the risk faced by those that generate an unbalanced percent of their profit during the holiday season.

Michael Appel, former CEO and chair man of Rue21 and a turnaround expert at Appel Associates, believes retailers haven’t learned the lessons from the Covid-19 pan demic and are going down a dangerous path.

Retailers panicked at the start of Covid and canceled everything they could when local governments mandated the closure of stores to curb the spread of the virus. But once stores began reopening, retailers grabbed whatever they could because they needed to get new merchandise into their stores ASAP. According to Appel, retailers also got the ben efit of pent-up consumer demand last year in the form of gross margins because they were able to sell more at full price.

Consumers headed back to in-store shop ping en masse in 2021, hunting for appar el options to update their closets as social

events and a return to work were back on the menu. According to Appel, however, the big mistake was in not anticipating that the good times would end.

While hindsight tells us retailers should have pulled back on orders sooner, that er ror was compounded by supply chain delays. Late receipts of deliveries came at a time when consumers had already shifted gears and changed their shopping focus. That led to an overabundance of goods sitting in warehouses that retailers are trying to un load. In fact, having too much inventory and nowhere to store it even had retailers com peting for warehouse space.

Walmart Inc. this past May said inven tory was up 32 percent year over year, an increase that CEO Doug McMillon said was “higher than we want.” While the dis counter lowered prices, it wasn’t enough to clear out the excess. Three months later when the mass discounter posted second-quarter results, Walmart said it had about $1.5 billion in inventory, and that it had to slash billions of dollars in fourth-quarter orders to get its inventory levels back under control.

Walmart wasn’t the only retailer dealing with an overabundance of goods. Target Corp. in May, when it reported on first-quar ter results, missed expectations because sup ply chain costs halved its net profits. But it too “ended up carrying too much inventory in several categories where the slowdown in sales was more pronounced than expected,” chief operating officer John Mulligan said at the time. Target found itself needing to se cure temporary storage, a move to ensure that less of the excess inventory would be “jamming the store sales floors.”

One month later, Target dialed back its home goods assortment mix to right-size its inventory levels. When Target posted sec ond-quarter results in August, it said it cut $1.5 billion in upcoming “discretionary” re ceipts to get itself out of its inventory mess.

Specialty chains also faced similar storage constraints. American Eagle Outfitters said that it overshot demand after aggressive ly planning first-quarter merchandise. The teen retailer had to mark down its pile of ex cess inventory to clear the goods.

Appel’s concern centers on how retailers canceled forward orders that would have arrived late summer and early fall for the holiday season. He called that a “knee-jerk” reaction because “retailers panicked again.”

But with so much inventory—some were holiday basics for last year that came in late—already in stock, why would can

celations be bad, especially when there was no room to store the goods that would have been arriving?

Appel said that when there’s a deluge of promotions and discounting to clear out goods, that’s the time when retailers need a fresh supply of on-trend seasonal merchan dise to grab consumers’ attention and fur ther distinguish themselves from the compe tition. But with all the cancelations, retailers now run the risk of not having enough of the right inventory for holiday. And that could be trouble for some.

Even worse, the inventory problem doesn’t seem to be improving.

Wells Fargo retail analyst Ike Boruchow said the inventory situation remains grim. “There is simply too much product out there today, which puts margin risk on the table through holiday,” he said.

Boruchow said that “discussions with industry experts lead us to believe the in dustry-wide inventory overhang will lead to elevated promotions this holiday season— perhaps the most intense promotional peri od in 10 years.” He added that the “hope is that by the beginning of next spring, channel inventory will be significantly cleaned up.”

And with all the promotions likely ahead, he doesn’t see an easing of margin pressure any time soon, especially if foot traffic re mains weak and the consumer continues to shift spending away from goods toward ser

HOLIDAY 2022 IS EXPECTED TO BE THE MOST PROMOTIONAL IN DECADES.

vices and experiences. More importantly, if consumer demand worsens, retailers could miss their top-line expectations. That means that merchandise margins will be even worse when it comes to fourth-quarter and full-year earnings results.

S&P credit analyst Sara Wyeth agreed in a report in November noting that retailers will need to rely on promotions and discounts to clear excess inventory that’s accumulated from earlier this year. “Weak volumes and persistent cost inflation will affect the credit quality of retailers most exposed to holiday shopping,” she added, concluding that the impact will extend to suppliers of discretion ary categories,” including apparel.

Wyeth and her credit analyst colleagues across the retail, restaurant and consumer goods sectors said shoppers have been tight ening their spending since the spring, possi bly anticipating a recession in the first half of 2023. The analysts are predicting a soft holiday season, with sales up 4.5 percent, in line with historical averages. That’s far lower than the 6 to 8 percent others including the National Retail Federation, are projecting.

If the credit analysts are right, then retail ers will have to work harder to drum up sales and that could mean even more promotions. The result could be that some retailers face additional pressure on credit quality because of higher exposure to discounts amid holi day sales.

Looking at 2019 full year results, which the credit ratings firm deemed a better rep resentation of sales over the past two years, S&P focused on retailers that generated more than 25 percent of their annual operat ing income from holiday sales.

Abercrombie & Fitch Co. was at the top of the list with its fourth-quarter share of total operating profit at 93 percent. In com parison, Macy’s Inc. was at 69 percent, while Nordstrom was at 41 percent. Other retailers came in far lower, such as Kohl’s Corp. at 38 percent, Foot Locker at 35 percent, and TJX Cos. Inc. at 30 percent.

And among the vendor suppliers who op erate company-owned stores, Tapestry Inc.’s reliance on fourth quarter was 43 percent, with Ralph Lauren Corp., Capri Holdings Ltd. and Under Armour Inc., each at 33 percent.

MARGINS WILL BE UNDER PRESSURE AS RETAILERS LOOK TO CLEAR EXCESS INVENTORY.

BOLD METRICS REDUCES RETURNS

BY 32% WITH PERSONALIZED AI FIT RECOMMENDATIONS

Coming from a family of master tailors, Daina Burnes, co-founder and CEO of Bold Metrics, knew fit tech was the core component for the future of e-commerce and the apparel industry’s success ful digital transformation. Today, Bold Metrics has over 45 million body models in its digital stable, and recently raised $8 million in a Series A round.

Here, Burnes explains how analytics integrated with cus tomer returns data empowers brands to improve product from the design stage, employing resources efficiently to benefit both the brand and their shoppers and improve sustainability efforts at scale.

Sourcing Journal: How does Bold Metrics differ from other fit tech products on the market?

Daina Burnes: Our Smart Size Chart leverages a proprietary AI Body Modeling technology that creates a unique 3D avatar with over 50 accurate unique body measurements. We go beyond size recommendations, relating these measurements to individual garment styles to determine how clothing would fit a body across critical points of measure, on a style-by-style basis. This helps brands increase conversion while significantly reducing returns. The body data that we generate can then be used in product development planning, and in technical design to optimize size grading systems.

Mobile scanning technology is prone to human error, with a lower adoption rate due to the need for customers to change into tight-fitting clothing for accurate scans, which also adds to privacy concerns. With Bold Metrics, shoppers fill in a simple survey and the resulting body measurement and shape data is mapped to product data. This enables brands to personalize the retail experience and remove the complexities around what size to buy, improving conversion by 20 percent and reducing returns by 32 percent on average.

How can Bold Metrics alleviate returns and also boost sustainability?

D.B.: Consumer preference-based returns drive approximately 72 percent of all returns in apparel product categories, with poor fit accounting for more than 50 percent of those returns (Shopify). The environmental cost of returns contributes an estimated 15 million metric tons of CO2 to the atmosphere annually while generating approximately 5 billion pounds of landfill waste within the same period in the U.S. alone. If the

entire U.S. apparel industry used Bold Metrics we’d eliminate 53,868 tons of landfill waste—equivalent to almost 115 mil lion pairs of jeans, not to mention 1 million tons of CO2 and $27 billion worth of returned inventory.

How does Bold Metrics get “smarter” over time to optimize future shopping?

D.B.: Our solutions surface a shopper’s unique body measure ments in each style to personalize the retail experience for every customer. When a shopper interacts with our tool, it automati cally tracks purchase and returns data to allow for a continuous feedback loop into the system, enabling a deeper understanding of how garments are fitting customers. Our solutions also layer elements like fit preferences and geographical differences so ma chine learning can recognize these patterns, trends and data. The recommendations become smarter and more accurate over time. Tailored Brands uses Bold Metrics’ solutions in over 800 Men’s Wearhouse stores and generated over 100,000 AI Body Models through Contactless Fit™, Bold Metrics’ in-store solution. All Men’s Wearhouse online tuxedo rentals leverage Bold Metrics’ Virtual Sizer solution, resulting in an average return rate decrease of 47.4 percent for online orders of tuxedo coats, pants and shirts.

What’s next for 2023?

D.B.: Our upcoming Apparel Insights™ dashboard generates ac tionable, data-led insights based on customer body data, shopper purchase and returns data, plus technical garment specifications so brands can create better-fitting products. Bold Metrics’ world’sfirst Body Data NFT™ technology works with Ethereum wallets like Coinbase and Metamask to provide a streamlined experience for shoppers buying clothes online, in-store, or in the Metaverse, while readying apparel brands for Web3.

“ Over 52 percent of apparel returns are due to poor fit.”

All Inventory Isn’t Created Equal

A MISMATCH BETWEEN WHAT RETAILERS HAVE AND WHAT CONSUMERS WANT HAS EXACERBATED PRODUCT OVERLOAD.

GLENN TAYLOR

Many a headline and earnings call throughout the industry over the past six months have shared a common theme— brands and retailers simply have too much merchandise. And with that, dreaded discounts have pervaded across the industry, signaling that merchants remain in dire need to get product off their hands—even if it means compressing margins. The ques tion now: can retailers recalibrate in 2023?

APPAREL IN 2022 DEFINED: TOO MUCH PRODUCT

Throughout 2022, the inventory problem has had implications that scale industrywide. A re cent survey from Accenture found that nearly all retailers (99 percent) surveyed had increased their promotional activity on some level, while 98 percent incorporated availability guarantees as part of their holiday plans. Furthermore, 37 percent of the 100 retail executives surveyed said their company is stockpiling goods to en sure they have enough supply for customers, and 35 percent revealed they were deeply dis counting to offload surplus stock.

By the second quarter, retail inventories were up 31 percent over the 2021 period, according to S&P Capital IQ and FTI Con sulting analysis. In apparel, this problem was

even worse, with inventories up 42 percent.

When an athleticwear and footwear titan like Nike sees its inventory soar 44 percent to $9.7 billion, with that number shooting further up to 65 percent for North Ameri can inventory and 85 percent for in-transit inventory, it illustrates the tough decisions that even the most well-run brands have had to make in clearing product.

Inventory levels have jumped everywhere you look—just peek into the most recent earnings reports of apparel’s top players. Ex cess inventory has been a thorn in the side of companies ranging from significant success stories to retail’s laggards, whether it be VF Corp. (an outsized 85 percent increase), Lu lulemon (85 percent), Abercrombie & Fitch (71 percent) Adidas (66 percent), Levi Strauss & Co. (43 percent), Gap Inc. (37 percent), Ralph Lauren (36 percent), Hanesbrands (31 percent) or Under Armour (29 percent).

If there’s a possible indicator of how the end of the year into 2023 may play out, it may be prudent to examine the king of retail. Walmart shined a ray of hope after reporting third-quarter earnings on Nov. 15. Although the Bentonville behemoth’s global inventory increased 13 percent in the quarter, much of the growth was attributed to inflation rather than an increase in actual SKUs, according to CEO Doug McMillon.

The number slowed down from the 25 percent inventory increase seen in the sec ond quarter, thanks in part to canceling “bil lions of dollars” in orders, according to chief financial officer John David Rainey.

EXCESS INVENTORY ISN’T ALWAYS EQUAL

While most retailers have been caught up in the inventory struggle in 2022, it may be sim plifying the scenario to call it a blanket prob lem across all products they import and sell. There’s an element of unevenness related to how consumers have chosen to spend, which impacted the depth according to Nikki Baird, vice president of retail innovation at Aptos.

“Retailers have too much of the inventory that consumers don’t want, and not enough of the inventory that consumers do want,” Baird told Sourcing Journal. “The discount ing is fairly uneven as well. It’s discounting to clear out the inventory that consumers don’t want, but it’s not discounting so much on the inventory that consumers do want, because retailers just don’t have enough of it. There’s

still a lot of inventory that’s on store shelves today. That was stuff that they ordered from 2020 and only received this summer.”

In a nutshell, delays out at sea, in the air and at the ports prevented retailers from get ting the right product at the right time. Baird observed how a retailer may make the deci sion to buy sweatpants in January or Febru ary, but by the time the product got to stores in warmer weather, consumers were already more interested in shopping for jeans.

“When furniture retailers were still going heavy on patio furniture, consumers were al ready saying, ‘I’ve already done my back deck.’ It’s a classic case of ‘past results don’t predict the future,’ but as a planner, what you start from is past results. If you start from that and you don’t have other indicators or consider ations that you account for, then you’re only going to be able project forward from there. And that’s what a lot of retailers did.”

Although major retail companies like Walmart, Target, Kohl’s and VF Corp. have canceled orders at some point this year to fight off the inventory glut, don’t blame those issues on the current volume of products, says

MAYHEM IN THE TRANSIT OF GOODS HAS LED TO A DISCONNECT OF SEASONAL MERCHANDISE.

Baird. In many cases, retailers may have prod uct out in the supply chain headed their way without being entirely sure where it is.

“They just didn’t buy enough for that level of demand,” said Baird. “They’re not over-in ventoried across the board. It’s only when you look at the average. When you start looking at the categories, then you see some stark differences between them.”

Baird is optimistic about 2023 based on her conversations with retailers, calling it the tail end of this “inventory mismatch” because they have slowly caught up to the rapid consumer spending shift from pandemic-era buying hab its to post-pandemic era buying habits.

RELIEF ON THE HORIZON? PORT TRACKING DATA SAYS SO

The efforts to scale back on inventory are finally coming to a head at the ports, with monthly imports expected to decline to their lowest point in nearly two years, according to the monthly Global Port Tracker report from the National Retail Federation (NRF) and Hackett Associates. In December, 1.9 million twenty-foot equivalent container units (TEUs)

are forecasted to be handled across U.S. ports, a shade above the 1.87 million TEUs at ports in February 2021, the research says.

Recent months have indicated that fewer products are clogging up the ports headed into the holiday season. In September, TEUs dipped 5.1 percent from the year-ago month to 2.03 million, while they had an even larger 10.2 percent drop from the month prior.

“We expect the flattening of demand that began around the middle of this year to con tinue into the first half of 2023,” said Hackett Associates founder Ben Hackett. “This will depress the volume of imports, which has already declined in recent months. Carriers have begun to pull services and are looking at laying up ships.”

January 2023 is forecast at 1.98 million TEU, down 8.4 percent from January 2022. February is forecast at 1.71 million TEU, down 19.1 percent from last year, when backed-up cargo kept congested U.S. ports busy despite the annual Lunar New Year shutdown of Asian factories. With most congestion issues continuing to ease, the month is expected to be the slowest since the 1.61 million TEU crossing the ports in June 2020.

“Retailers have too much of the inventory that consumers don’t want, and not enough of the inventory that consumers do want.”

— Nikki Baird, Aptos

FASHINZA BRINGS AI INTO THE INVENTORY EQUATION

With apparel brands now sitting on more inventory than they know what to do with, demand forecasting will be pivotal to figuring out where they can go from here. But by bringing artificial intelligence and advanced data science into the mix, these brands can minimize the legwork needed to predict trends and give their suppliers a clearer picture of what products they need. Pawan Gupta, CEO and co-founder of apparel sourcing and development platform Fashinza, gives his thoughts on the growing need to incorporate artificial intelligence (AI) into inventory management.

Sourcing Journal: Where do artificial intelligence and data science fit into the future of inventory management?

Pawan Gupta: The application of AI has been recognized in the fashion and apparel industry at various stages such as apparel design, patternmaking, forecasting sales production and inven tory chain management.

With the emergence of globalization and digitalization, AI has played a significant role in connecting businesses. In the last decade, the fashion and apparel industry has utilized AI to a certain extent for improving inventory chain processes like apparel production, fabric inspection and distribution. This was important in assisting what can be a volatile industry, in that it is always challenging to quickly respond to change in trends and continuously evolving consumer demands.

How can AI foster more accurate inventory management capabilities?

P.G.: Fashinza is using deep learning and prediction algo rithms to offer sustainable supply chain solutions. We believe people and businesses in fashion and lifestyle retail can tackle complex challenges and change the world with the appropriate data and technology. As such, we’re deploying AI to predict demand patterns and emerging fashion trends. Such data-driven production helps brands with inventory man agement and improving business impact decisions. Fashinza creates demand forecasts based on customer behavior online.

Fashinza has a team of more than 20 people to super vise the machine learning algorithms, which inform every action from designing garments to optimizing logistics. With further improvements in the AI support systems, our partner brands will have the scope to make more informed deci sions about product development, sustainable production and profit optimization.

How do you ensure sustainable production practices among your partner factories?

P.G.: We have a robust onboarding process for new suppli ers—a financial audit, a quality audit and a factory infra-audit conducted by our ground team. For sustainability, we check for compliances such as SEDEX, WRAP, OEKO-TEX, ISO and GOTS.

What’s missing in many manufacturer/supplier relationships?

P.G.: There are two things which I think are always missing between the brand and manufacturers. Too often, incomplete in formation is provided to the manufacturers. Additionally, when a financial transaction remains unresolved or an order gets can celed, this can build a lack of trust on the manufacturer’s end.

From our point of view, we have seen fashion and apparel companies still struggle with a lack of space to store their goods, which often leads to warehouse inefficiencies. And still, many companies don’t track their inventory properly, further complicating the communication between brand and supplier.

Earlier this year, Fashinza secured a $100 million funding round. How has the company been able to scale with the investment?

P.G.: With the recent funding, we have expanded our service across North America, U.K. and various European countries. Also, we have largely invested in smart factories in India and other countries to create better transparency and visibility on the supply chain, which is enabling us to move towards Industry 4.0.

“We’re deploying AI to predict demand patterns and emerging fashion trends.”

Real Time Is The Future

KATE NISHIMURA

The fashion industry has been fly ing blind when it comes to inven tory “for a very, very long time.”

That’s according to Ahmed Zaidi, co-founder of omnichan nel management platform Stealth and the recently launched collaborative planning system Hyran Technologies. The fashion and supply chain researcher said brands have been banking on an outdated blend of histor ical sell-through data and trend predictions to pinpoint the products they believe shoppers will want. But in an era where influences and lifestyles are constantly shifting, the old for mula for forecasting is feeling decidedly stale.

The consumer was once driven by news paper ads and glossy magazines, but today, social media anoints new tastemakers daily. Rapidly shifting trends are matched by con stant changes in consumer desire. Despite these new consumption habits, brands are still laser focused on driving down costs, “and not on mitigating uncertainty and the risk of not being able to sell their inventory once the product arrives,” Zaidi said.

These challenges have become all too real in a post-pandemic retail landscape. With some categories, like food, companies can predict the frequency of consumer trans actions with some certainty based on their previous behavior. “You’re going to buy milk

at a fairly frequent, consistent basis, and very rarely are you going to deviate from that,” Zaidi explained. But discretionary spending on goods like apparel sees much more vol atility. Consumers will put such purchases on the back burner when they start to feel financially strained or when they experi ence lifestyle changes. “Whether they buy a T-shirt or not is completely unknowable, be cause it’s an emotive, impulsive decision,” he said. “Building a forecasting model around impulsive decisions is a disaster.”

Stakeholders are aware that the forecast ing methods they’ve been employing for de cades are faulty, but in the absence of alter natives, they’ve stuck to the same M.O. “One of the things that I’ve been hearing from industry veterans more recently is that fore casting doesn’t work, and it’s never worked,” Zaidi said. “We’ve just created so many buf fers around our forecasts that it looks like the system works.” At the end of a season that may have started off with favorable margins, many companies are recording re cord low EBITDA, an indicator that “there’s a lot of inefficiency there.” Margin-busting discounts and promotions have become es sential to moving product off store shelves.

While the sector has come to recognize that traditional inventory planning methods are falling short, Zaidi said its current under

THE OLD MODEL OF BULK ADVANCE BUYING NEEDS TO MAKE WAY FOR AN AGILE AND ADJUSTABLE ONE.

standing of how to effectively leverage data is limited. “A few years ago, a leadership team asked me, ‘Can AI predict whether cheetah print is going to be in fashion next year?’ and I said absolutely not—that’s not what you should be using AI forecasting models for,” he said by way of example. Instead of using their data to attempt to pinpoint seasonal trends, brands should be working to map “the opti mal route of production that maximizes over all profitability, and minimizes waste.”

“An agile supply chain is one where you’re making a series of small bets,” he explained. “You adjust those bets as you get more infor mation from the consumer and adapt to how they are behaving.” Instead of pushing out a high volume of cheetah-print blouses at the beginning of the season—and committing to a silhouette and size range that might not serve their consumer base—brands should be releasing inventory strategically and gauging demand in real time. Test-and-react is by no means a new concept for the sector, and some brands are chasing sales effectively on a small scale. But Zaidi believes there are hurdles that have stymied the industry’s evolution, and most originate upstream in the supply chain.

A standard product line could be made with dozens of different inputs. A purchase order prompts a supplier to buy the fabric and trims needed to fulfill it, and few changes are made after contracts are signed, protecting manufacturers from fickle buyers. The inflex ibility of these terms stifles agility and adapt ability, but strained relationships between brands and suppliers persist post-Covid, after many factories were left holding the bag on raw materials and even finished products.

Brands can invite more flexibility by pre-committing to production capacity and whittling down their raw material rosters, reducing complexity for factories, accord ing to Zaidi. They can agree to purchase a certain volume of product but remain open to styles and size ranges until they have current, in-season data to inform the next round of production. Engaging in more pre-competitive collaboration surround ing material sourcing would also help drive down costs, he said. Agreements between fashion firms to utilize and source a limit

ed range of fabrics would be “better for unit economics, and also much better for sus tainability” because it would keep material from going to waste, Zaidi said.

Zaidi’s recently launched firm, Hyran Technologies, enhances visibility across the supply chain, gauging consumer demand and assessing the availability of raw materi als. “When a merchant is making a decision on a particular order that they’re placing with a factory, we compute the risk that their or der poses,” he said. Historical data provides indicators about demand volatility for cer tain styles, sizes and colorways, allowing Hy ran to present a client with a risk assessment for any product, whether it’s a seasonal basic or a trend-forward style.

“One thing we might say is ‘Look, this product is very risky. These six colors have a lot of volatility, so postpone committing ful ly to these colors and produce 60 percent of your initial forecast,’” reserving the remain ing 40 percent of production volume in raw materials. The firm provides an in-season assessment of which colorways and sizes are performing well, helping brands create a plan for replenishment. Traditional Enter prise Resource Planning software requires companies to input full orders for finished goods, and the platform helps factories to manage the complexity of allocating raw materials to different orders.

Zaidi said Hyran is also working on an end-to-end solution with design firm Plat formE to help brands design within certain parameters to mitigate risk. “We send Plat formE data on what raw materials are sitting in the factory, the designer can see what the available materials and colors are, and they can design within that constraint,” he explained. The program will give them a re al-time view of costs and lead time.

Whether it stems from geopolitical con flicts, tariffs or economic pressures, “The only thing that you can guarantee is that there will always be volatility that could im pact sales and the supply chain,” Zaidi said. The only way to prepare is to adopt strate gies—and technology—that allows brands to become “more resilient and to be flexible,” he added.

“Building a forecasting model around impulsive decisions is a disaster.”

AHMED ZAIDI

HOW NARVAR IS HELPING KEEP RETURNS LOW

Returns and dynamic returns policies are at the latest fore front of customer acquisition. In fact, customers are gravitating toward easier experiences, and will intentionally stray from retailers that introduce too much friction or don’t provide them with enough choice and convenience.

Here, David Morin, head of retail strategy at Narvar, tells Sourcing Journal how companies can minimize returns and build a long-term competitive moat around their businesses.

Sourcing Journal: What would you say is the key to minimizing returns?

David Morin: There are many steps you can take to reduce the likelihood of returns and retain revenue. First, you can improve your product detail pages by adding sharper photography, fea turing multiple models of different shapes and sizes and sharing more product reviews. Second, you can offer easy exchanges over returns directly within your returns flow, allowing customers to easily swap sizes or colors, or replace a defective item. Third, you can incentivize customers to choose a retailer-preferred method, such as offering free shipping or a 10 percent increase in refund value, both examples of when consumers choose to receive their refund to a retailer e-credit versus the original form of payment.

Narvar recently partnered with technology company Fillogic. How will this partnership help retailers and brands simplify and expedite product returns?

D.M.: What’s new here is that retailers can get returned inventory back in stock 70 percent faster than normal. Fillogic’s localized logistics network and Narvar’s post-purchase platform enable re tailers to better serve customers who need to return or exchange merchandise. This partnership will make it easier for shoppers to find a convenient Narvar drop-off location and provide an on ramp to Fillogic’s platform.

While impossible to predict exactly, what are you projecting this holiday season when it comes to delays and returns, and consumer satisfaction?

D.M.: The big question mark this holiday season is the econ omy. While we haven’t seen significant decreases in consum er spending, inflation is at a decades-long high, and there are early signs that consumer confidence may be impacted.

The good news is that due to the last couple of years of supply chain concerns, most retailers have diversified their outbound carrier networks so that they are not as heavily reliant on a single shipper.

That being said, some level of delays will be unavoidable, so the best retailers will be hyper-focused on using solutions such as Narvar Monitor to unlock real-time carrier perfor mance and build communication programs that effectively set customer expectations.

How can brands build trust, retain revenue and grow customer lifetime value?

D.M.: Revenue retention and lifetime value are the direct re sults of a retailer building trust and peace of mind with their customers—if you earn a shopper’s trust, the money will fol low. You can use the post-purchase experience to cement your customer’s trust in several ways, from proactive and transpar ent transactional notifications about delivery status (pick ing, packing, shipping, delivering) to offering complete and ultimate convenience in both outbound and return offerings (printerless or home pickup capabilities for product returns).

After last year’s epic supply chain delays, are consumers more understanding or do they all want immediate gratification again?

D.M.: Following two years of well-publicized “ship-ageddon,” consumers are certainly more aware of the supply chain than they’ve ever been, but the fact remains that people want their purchases now rather than later. Most important is for retailers to set proper expectations early and often, providing realistic esti mated delivery dates through checkout—and continuing through the duration of the delivery experience—especially if things are not going as planned.

“ Following two years of wellpublicized ‘ship-ageddon,’ consumers are certainly more aware of the supply chain than they’ve ever been.”

Can Brands Swing the Returns Pendulum in Their Favor?

WITH ALREADY TOO MUCH INVENTORY ON HAND, RETAIL WOULD BENEFIT FROM BETTER HANDLING OF SENT BACK MERCHANDISE.

GLENN TAYLOR

As inventory issues continue to impact most of the industry, another problem only adding to the glut is returns.

Returns have been iden tified as the $761 billion albatross around retail’s neck, with as many as 91 percent of merchants reporting that returns are accel erating faster than revenue, a recent survey from Appriss Retail and Incisiv indicated. One reverse logistics platform, Optoro, even said October’s returns processed through its operations leapt 74 percent from 12 months ago, totaling 8.63 million units.

Despite the escalating volume of returns, brands can indeed find ways to leverage the problem to their relative benefit.

Roughly 25 percent of shoppers are willing to pay for more convenient ways of returning their purchases, according to Narvar’s sixth annual State of Returns consumer survey.

Thirty percent of the 2,023 respondents said they would pay for scheduled pickup,

while 24 percent would accept a fee in ex change for not having to box up a return or worry about printing a shipping label. An other 22 percent said they would pay to use return lockers.

Having said that, more retailers are charging a return shipping fee than last year, indicating that they are actively looking to mitigate the losses associated with returns. Whereas only 33 percent of retailers charged for return shipping in 2021, the number in creased to 41 percent this year, according to Narvar’s separate analysis of 200 retailers.

These fees aren’t exactly what either Narvar or the consumer has in mind when they are talking about paying for added con venience. The post-purchase technology provider considers “Gold Medal Policies” to skip the shipping or restocking fees. Such surcharges cross the threshold into “Silver Medal Policies” at $6. “Bronze Medal Poli cies” count for shipping fees above $10, in dicating that tacking on a surcharge is still

discouraged and that brands should consid er alternatives that don’t saddle consumers with extra costs.

“Our research shows that shoppers are undoubtedly benefiting from retailers’ gen erous return policies,” said Narvar CEO Amit Sharma. “Return windows are getting longer, refunds are happening faster, and technology is making returns easier than ever before—boosting customer satisfac tion. There is a significant opportunity here for retailers to increase loyalty and retain revenue by offering differentiated and per sonalized return policies that meet different customers’ needs.”

Appriss Retail chief data scientist David Speights said it makes sense for retailers to implement return fees in certain circum stances, such as when a customer shows excessive or abusive behavior in trying to wiggle out of too many purchases. But he warned against universal policies that could have “serious negative consequences.”

“It seems like most retailers are taking a blanket approach to returns fees using a sim ple methodology, such as value of the orig inal order, to determine which consumer has to pay and which doesn’t,” Speights said. “Return fees are unpopular with all consum ers, and from our experience are overridden frequently by the associates at the return counter. Therefore, being strategic in how and when you charge fees can be a compet itive advantage. Retailers should reward the most profitable customers by waiving the fees and add friction into the process for other shoppers who misuse returns to influ ence a different behavior in the future.”

Narvar also said that publicizing the returns policy is a major opportunity where retailers simply aren’t sufficiently taking advantage. Only 20 percent of the retailers researched by Narvar made their returns policy visible in the top navigation bar of their website.

To the surprise of no retailer, returns are common and widespread: 26 percent of shoppers surveyed said they had returned more than four items in the last six months, with apparel and footwear accounting for 46 percent. Clothing alone accounted for 31 percent, nearly doubling the 16 percent of consumer electronics returned.

And these consumers are increasingly us ing third-party drop-off locations: 37 percent returned their most recent online purchase by dropping it off at a UPS store, unaffiliat ed retailer or similar alternative partner. The trend has grown over the past four years, from 11 percent in 2019 to 19 percent in 2022, Narvar said.

Once again, convenience is key here: 85 percent of shoppers that used third-party drop-off locations preferred them because of convenience of hours and location.

For retailers to capitalize on potential rev enue-saving opportunities, they will have to figure out how to make exchanges more en ticing. The majority of shoppers still request refunds rather than exchanges: 63 percent of respondents said they asked for a refund when making their most recent return with a non-Amazon retailer. This suggests that retailers have a material opportunity to im prove the bottom line by converting these refund requests into exchanges, even if they are for items of different value.

AI can help provide better incentives.

Narvar says retailers should incentivize returners to seek an exchange over a re fund—that could be through a coupon, pro motion or other offer. While this potentially helps save the sale, it also encourages shop pers to make their next purchase faster than they might have otherwise, the report noted.

BRANDS CAN UTILIZE NEW WAYS TO LEVERAGE THE RECURRING RETURNS PROBLEM TO THEIR BENEFIT.

For example, three in 10 shoppers would ac cept a refund on a gift card if they could get it immediately, the survey said.

Speights believes AI technology may be the answer to delivering a more personalized returns experience. The technology can play into these incentives by leveraging data that better understands consumer shopping pat terns, further helping forecast trends.

“AI can also provide enhanced A/B test ing for incentives,” Speights said. “Artificial intelligence models are self-learning and as they learn, lower-performing offers are re moved from the library. As new offers are added, random distribution happens in a fraction of the time until the model learns how customers react to the new offer. This is a highly efficient approach that allows the retailer to maximize the profitability of its incentive programs.”

The Appriss and Incisiv study noted that 66 percent of retailers said they want to in centivize shoppers at the point-of-return, but just 22 percent are doing so.

“Lack of ownership of returns is certainly one issue contributing to that statistic, and competing IT initiatives and cross-channel data silos don’t help. Without insights from integrated data, incentives are often stat ic—like blanket return policies—so offering BOPIS might be risky since it may not make sense for every consumer,” Speights said. “With AI-driven incentives, retailers can use a holistic set of data and a library of offers to push the right incentive to the right con sumer based on historical characteristics, including incentives to pick up or drop off in nearby stores. With today’s technology, those types of recommendations can hap pen instantaneously and more effectively.”

In many ways, handling these problems seems to be an organizational issue, accord ing to Appriss and Incisiv study. While 64 percent of retailers reported that returns are an issue they’ve been tasked to take on, just 27 percent have appointed an executive to manage returns performance, echoing find ings from rival returns innovator Newmine.

Similarly, only 29 percent said they have a strategic returns management program in place, while only 21 percent believe their cur rent processes are effective.

“We believe having a single executive in charge of returns is a necessary compo nent to protecting profitability of the re tailer,” Speights said. “Additionally, instead of focusing solely on what consumers buy, retailers should focus on what consumers keep. Consider returns through a sales lens. If returns are 18 percent of sales, for exam ple, then think of how the business would behave if that was a product line or sales channel delivering 18 percent of revenue. A retailer would have an army of people man aging that channel or product and identify ing ways to improve the number.”

Poor fit remains the top reason for re turns, according to Narvar. For the sixth year in a row, “fit and size” accounted for 45 percent of returns, up from 42 per cent in 2021 and 38 percent in 2020. “Fit and size” was tops among both first-time shoppers (22 percent of respondents) and loyalists (the remaining 78 percent). The trend indicates that retailers have yet to maximize their augmented reality (AR) and fit technology investments or unlock the full value of the sizing data customers are providing.

OPTORO REACHES 100 MILLION PROCESSED RETURNS

Some of the technology providers in the re turns space like Narvar, Newmine, Appriss and Optoro are finding their own ways to solving the returns problem, with Optoro citing that its platform has now processed more than 100 million returns.

Optoro has recently expanded its tech nology and footprint to meet increased de mand from mid-market retailers in the ap parel and home goods spaces after getting a $25 million investment led by Zebra Tech nologies to close out 2021.

To support the increasing number of re turns processed through its platform, Op toro opened new distribution facilities in North America this year. In June, the part ner to Ikea and American Eagle launched its software at a Canadian facility for the first time. In tandem, Optoro expanded its man aged service offering to the West Coast as part of its nationwide processing network.

“Return windows are getting longer, refunds are happening faster, and technology is making returns easier than ever before.” — Amit Sharma, Narvar

Excess Inventory A Boon for Off-Pricers

WELLS FARGO RETAIL ANALYST IKE BORUCHOW INVESTIGATES

THE TRENDS AT PLAY IN RETAIL AND WHAT THEY MEAN FOR OFF PRICE

IN 2023.

VICKI M. YOUNG

If this were a down year for off-price retail, then things might be looking up come 2023.

The 2020 crisis that scrambled storied nameplates from Century 21 and Stein Mart to Stage Stores unleashed a broader off-price inventory dilemma last year when retail product scarcity left rela tively little to trickle down to the less-thanfull-price channel. All of that changed in the spring when mainline chains including Walmart and Target found themselves stuck with an overflow of late-arriving winter mer ch people broadly passed on buying. And off-price stores were also caught unawares by the overnight upheaval in what would get shoppers spending.

Wells Fargo retail analyst Ike Boruchow is exchanging his recently downbeat posi tion on off-price’s fortunes to argue a bullcase scenario heading into the year ahead. From where he sees it, brands will get back to closeouts and pull the trigger on packand-held inventory reserves while slow down-wary consumers will steadily trade down to cheaper goods as better freight

rates support the bottom line. Taken togeth er, Boruchow believes these factors will buoy the off-price sector in 2023.

Consumers who quickly threw off pan demic staples like sweats and loungewear early this year left retailers saddled with aged product that suddenly wouldn’t sell. “This means desirable branded product wasn’t readily available through any channel for consumers and differentiated branded in ventory was difficult for the off-pricers to come by,” Boruchow said.

Drilling deeper, when cheap chains like Walmart and Target compete on price, the only lever they have to drive traffic is assort ment, according to Boruchow. Without the usual attractive branded merchandise they have to offer, the off-price sector was “less compelling earlier this year,” and faced a tough time “shift[ing] in and out of key cate gories, like athletic,” he said.

On top of that, shoppers realized they could get big bargains at mainline stores slashing prices to move product, making off price more of a snooze than it usually is.

Ross Stores CEO Barbara Rentler admit

ted that sales trends suggested the customer “doesn’t think the value is where it needs to be” at the Ross and DD’s Discounts owner. Though the off-price company is working to rebalance stock from casual to more fashion forward, it still has a “longer way to go,” she said in August.

It’s not all bad news, though. New ven dors are arriving on the scene, and those who previously “didn’t have anything on hand to offer” now are flush with goods, Rentler said. That suggests that suppliers are expanding their merchandise offerings, giving off price the benefit of choosing from a broader pool of inventory.

That’s a welcome development consid ering Ross Stores said Monday it debuted 40 stores across both banners in Septem ber and October for 99 total openings so far this year. It’s shooting to reach 3,600 stores eventually, up for the roughly 2,000 it oper ates today. The openings indicate that Ross Stores can tap enough inventory to fill the new locations.

Rival TJX also noted that suppliers had plenty of merchandise to offer. CEO Ernie

Herrman said the TJ Maxx, Marshalls and HomeGoods owner saw “unprecedented” market availability among “good, better and best” brands. In fact, the company’s biggest problem was keeping merchants from “buy ing too much, too soon” so TJX could still have enough open-to-buy to adapt as need ed, Herrman said.

The fall/winter order cancelations creeping back in at retail have been a windfall for some off-pricers lucky enough to get their hands on product that merchants couldn’t or didn’t want to seal up in overstuffed warehouses.

Aptos Retail vice president of strategy Nikki Baird said retailers she’s spoken with generally believe their “too much stuff” problem will hit “rock bottom” before Janu ary. That would put an end to the widely dis cussed “warehouse storage issue,” she said.

Off price stands to win if retail gets back to a more typical pricing strategy that doesn’t put the channels in direct conflict. That would give off-price retailers the abil ity to make price adjustments as needed to counter cost inflation on the supply side, something they hadn’t been able to do in the

THE VALUE PROPOSITION AT OFF PRICE STORES IS EXPECTED TO IMPROVE HEADING INTO THE FIRST HALF OF 2023.

JUSTIN SULLIVAN/GETTY IMAGES

first half of this year.

Boruchow believes a return to more nor mal pricing tactics across all retail channels would revive the trade-down consumer. First-half comps suffered in their absence, he pointed out. For those who take advantage of closeouts to pack and hold inventory as is customary in off price, Boruchow expects this will give them branded goods they can sell at higher margins, particularly though holiday and into spring. Falling freight rates will also bring transportation costs closer to historical norms.

Burlington CEO Michael O’Sullivan ac knowledged the off-price retailer’s first half misfire as the company didn’t move quick ly enough to embrace consumer trends and stumbled on inventory, too. After meeting with O’Sullivan and other Burlington execu tives last month, Boruchow said the retailer is fixing its merchandising processes and a cutback in upfront buys helps to right-size the branded assortment issues. He expects Burlington’s material comps to improve on a strong reserve inventory position through first half of 2023.

.

TJX CEO Ernie Herrman said this summer the TJ Maxx, Marshalls and HomeGoods owner saw “unprecedented” market availability among “good, better and best” brands.

New Platform Allows Brands to Offload Inventory— Discreetly

GLENN TAYLOR

Atech startup believes it has the answer to apparel’s excess inven tory woes—and it wants to stand out by giving brands the chance to offload their unsold merchan dise discreetly and sustainably.

Ghost, an online B2B marketplace that connects brands with off-price retailers and other sample sale operators and buyers, wants to give sellers a private experience that keeps their presence hidden from com petitors and consumers—effectively giving them more control over where they can sell their excess product.

Within the marketplace, suppliers, retail ers and wholesalers alike can upload their goods to the platform and list SKU informa tion, product availability, total volume and product descriptions. In line with the prom ise of privacy, the inventory owner can select specific restrictions as to which potential buyers can see the product.

For example, sellers can opt not to sell to

online-only retailers, or exclude non-U.S. mer chants from viewing their products. None of Ghost’s product appears on online searches.

Co-founded by Josh Kaplan and Dee Murthy, Ghost launched in beta in July to give brands and suppliers a chance to better protect their product and intellectual prop erty (IP) alike.

While “a few hundred brands” have been onboarded, according to Kaplan, Ghost now has a 600-brand waitlist due to high demand. On the buyer side, Kaplan said in September that the company hoped to get “a few thousand” buyers on the platform with in six months.

“We’re incredibly strict as to who we let into the platform on both sides,” Kaplan said. “We go through a very strict vetting process. We require the leases for all of the goods be fore they’re uploaded. I think that that helps us prevent inventory from getting into the wrong hands, and you don’t want it to be dis played on the Internet for everybody to see.

GHOST TAKES AN ANONYMOUS APPROACH TO LIQUIDATING MERCHANDISE.

Liquidation is not something anybody wants to deal with, but everybody has to.”

Buyers can browse the goods that are available on the platform, bid on them in an auction-style setting, and the seller can deter mine which offer they like best. Unlike many auction platforms, Ghost isn’t designed to re ward the highest bidder, Kaplan said.

“The highest price isn’t always the best option in liquidation,” Kaplan told Sourcing Journal. “Sometimes someone will want to take a lower price for a higher volume, or take a lower price to get the foot in the door at a bigger retailer that they don’t have a relation ship with. They also may want to diversify the product outside of the U.S. and so they may want to take a lower price, because they have to include things like international shipping.”

In June, the company closed on a Series A equity round of $13 million, as well as an other $7 million in debt. The investment was led by Union Square Ventures and included participation from Eniac Ventures, Human Capital and Flexport.

The marketplace came out of the all-tocommon problem plaguing the retail supply chain over the past two years. Los Ange les-based fashion company Five Four Group

(now knows as Menlo Club), which Murthy co-founded before recruiting Kaplan to his team, saw “tens of millions of dollars’ worth” of excess inventory stuck in shipping con tainers on Long Beach when e-commerce demand shot through the roof at the peak of the Covid-19 pandemic.

“We got our jackets in the summer and our shorts in the winter,” Kaplan said. “We witnessed firsthand just how challenging it was to offload excess inventory, especially being digitally native brands.”

From there, Kaplan and Murthy sought out multiple options to offload the goods, but none were satisfactory. The first was discounting, but that was nixed early due to potential margin compression and brand erosion. The second alternative was to go directly to an off-price retailer like T.J.Maxx or Burlington.

“We found out the hard way that it takes months to get set up as a vendor, and even longer to get paid,” said Kaplan. “They didn’t know who we were. Without any real histo ry of our brands, which we felt were pretty strong for the millennial consumer, there was really no willingness to pay for our prod uct versus any other.”

GHOST COUNTS “A FEW HUNDRED” BRANDS ALREADY ON ITS PLATFORM.

The last option was partnering with a third-party wholesaler, but the challenge there was “there was no transparency on where the product was going, and we were getting paid pennies on the dollar.”

When none of the ideas played out, the two decided to go it alone and Ghost was born. While the idea for the platform was initially designed for smaller digital natives that don’t have relationships with the larg er retailers, Kaplan says the platform is also valuable to more household names.

“There’s many brands that don’t have this sophistication—enormous brands that are us ing maybe just one wholesaler to take all their excess and they just don’t want to deal with it anymore,” said Kaplan. “Or maybe they have just one or two relationships with the biggest off-price retailers, but no other diversity, and that’s really where we’re winning. It’s basically about being that outlet for the biggest brands to diversify where that product goes.”

The co-founder also hopes that the plat form will give the buyers better prices, since there aren’t as many middlemen involved as a typical merchandising process.

Kaplan and Murthy keep a tight lid on who is on the platform, even from investors and most of the company’s employees, with Kaplan only admitting to having “at least

two or three of the biggest brands in the U.S.” on the platform.

He called the buyers a diverse set, but largely remain in off-price and department stores. While the company started in ap parel, they have since expanded to beauty, home goods, accessories and electronics.

Ghost took approximately 90 days to reach its first $1 million in total gross mer chandise volume (GMV), and then 180 days to get to its first individual $1 million GMV day, Kaplan said.

With the latest funding round, the com pany has been able to scale up its hiring. While Ghost had only eight employees be fore the Series A, that number increased to as many as 40 employees in late September. Kaplan expects the business to have “closer to 60” staff members by the end of 2022. The product and engineering team has tripled since the round.

“I think we’re going to see some really spectacular product improvements over the next year that we’re so excited about,” Ka plan said. “We’re really trying to better un derstand and invest in the customers’ expe rience, so that entails better integrations and access to services, and better partnerships that allow for us to really be the one-stop shop for liquidation. That’s the goal.”

“The highest price isn’t always the best option in liquidation.”

— Josh Kaplan, Ghost

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