ADAPT model ideal for dealing with apparel inflation in US: McKinsey

Adjusting discounts and promotions can help retailers ease margin pressures. By limiting the use of clearance pricing and shifting to leaner inventories, retailers can limit the issue of seasonal inventory overhang and make space for incoming merchandise, Jad Hamdan, Claus Heintzeler, and Jesse Nading said in the Mckinsey article. Brands can also focus on intensively promoting current inventories more instead of promoting their entire product assortment. Retailers and brands could also offer alternative omnichannel fulfilment options, such as buy online, pick up in-store (BOPIS), etc to reduce costs.

Developing a selective price change instead of imposing an average price increase across their entire product catalogue can help apparel retailers to be more compatible with consumers’ value perceptions. A granular pricing strategy that accounts different customer and product sensitivities, exposures to inflation, and inventory positions can be helpful to counter high costs and inflationary pressure.

Accelerating decision-making enables apparel companies to concentrate their store labour on pricing activities that bring about the highest returns on investment particularly when implementing fast pricing decisions in the face of price changes introduced by competitors. Streamlining processes with vendors, supply teams, store, design, or e-commerce operations can help apparel retailers to ease any hold-ups.

Planning options beyond pricing to cut costs can help apparel retailers expand their margins. For instance, they can lean away from brand-name products to more private-label offerings. Expenses can be better handled through design and category architecture and negotiating with vendors and suppliers to switch to materials or features that are of low value to customers. Use of next-generation sourcing tools like digital should-cost models and advanced analytics can assist retailers to engage with vendors more transparently.

Tracking execution relentlessly is critical in a fast-changing inflationary environment. Close monitoring of diminishing volumes and basket size can help retailers to identify change in customer behaviour owing to price sensitivity. Noting moves made by competitors and guardrails such as basket size, average unit retail, units per transaction, and customer transaction-frequency metrics can help advantage retailers.

Fibre2Fashion News Desk (NB)