Excess inventory has been a prominent topic in the sporting goods sector lately. Like the 2008 real estate crisis, our sports helmet and goggle industry is experiencing a bubble burst. But this isn’t just temporarily in the news. Like other manufacturing sectors, the current crisis has highlighted that we are woefully behind in implementing bare supply chain basics.
More importantly than inflation, the supply chain fiasco of the pandemic, or the lack of ERP systems, the foundational way our industry has been built was not market-driven, healthy, or natural.
Theoretically, excess inventory is simply the result of overestimating consumer demand. But, sadly, in our sector, the issue goes deeper than that.
We have (soon to be past tense “had”) conglomerates investing in the sector as vanity portfolio plays and pumping cheap money into companies focused primarily on marketing for more significant margins. Now, we are bracing ourselves for the ripple effect of empires like Signa breaking apart.
Understanding excess inventory for helmets and goggles
The question of inventory is part of my DNA. I grew up in a small skiing resort town in Switzerland. My parents owned a ski shop, so as a family business, I am very in tune with the seasonality and natural rhythm of scoping out trends, pre-ordering merchandise, and dealing with left-over stock at the end of the season. After about ⅔ of the season, my family-run store could see the customer buying results. Only then did we analyze what to buy for the following year.
We also adjusted our analysis by considering various parameters, such as the role of the year’s snow levels. A good season runs for 12 weeks, and a bad one only six weeks.
Imagine if we had the technology we have today back then. Brands could experience the store in real-time, just as I was experiencing the sales and the season's results.
Many will not agree, but the sector fallout taking place is necessary. It paves the way for implementing a longer-term strategy based on solid market factors and systems. Thankfully, we will be forced to focus on a more conservative approach to manufacturing and selling helmets and goggles based on data.
The risks associated with inventory glut
We all know that excess inventory reduces profits, limits cash flow, and is expensive to store. However, the threat of obsolescence or, even worse, deterioration is an even scarier problem. This is especially true for trendy fashion products that are also protective gear, like helmets.
Helmets have an expiration date of 3-5 years. Heat, humidity, and UV light deteriorate the materials. The pandemic supply chain crisis means that all those tardy containers put helmets on the shelves so late that many have already reached their maximum lifecycle. Besides, as we are in a fashion-driven industry, outdated inventory simply won't sell.
According to the Retail Owners Institute, the financial implications of excess inventory can increase a retailer's annual costs by 25% to 30%. Ouch. And guess what? Retailers certainly won't place more orders with manufacturers until inventory is sold. So, as a result, we are finding ourselves in a dangerous, never-ending Black Friday scenario.
Strategies for identifying and rectifying an inventory glut
Retailers over ordering inventory to cover the pandemic supply chain delays resulted in contracting more warehouse space and discounting. These are two of the most used strategies in all industries to resolve the issue in the short-term but are definitely not recommended over the long term because they lower margins and products expire or go out of fashion. Consumers get used to the lower prices, and raising prices causes lower demand. It is a cycle that retailers and brands can not break.
While solving the inventory glut with these reactive strategies is helpful, we need to start taking steps today to implement proactive solutions. The word "strategy" means that we need to think ahead to avoid this problem in the future by involving all parties, leveraging technology to the maximum, and enhancing transparency.
Here are some basics to work on immediately:
1. Improve communication to avoid excess inventory
From manufacturing product design to retail sales to the final consumer, the entire sales cycle and ALL the parties involved need better intercommunication.
Given my retail background and now working in manufacturing, I reflect counter-clockwise about the supply cycle; it is immediately apparent that there is a disconnect in communication between employees on the sales floor with their warehousing - and then on to the manufacturers.
Now that my consulting passion is working with manufacturers, I am surprised how a brand focuses so much on marketing but neglects to solidify many other business processes. What about recognizing the interconnectedness of all things and interdependence? One proactive step is to implement mobile data collection between manufacturers and retailers.
2. Supply chain transparency
Blockchain can transform manufacturers' supply chains. Going one step further, retailers can share data with manufacturers, and vice versa, to set product delivery expectations, adjust orders, and raise red flags sooner.
Now, with cloud technology and drive sharing, this type of communication doesn’t need to be expensive or cumbersome. It is a partnership for everyone’s long-term inventory and business health.
3. Combine last year’s data with last week’s data with today’s data
Leveraging inventory management software is an obvious necessity today for all retailers, big and small. All parties can act faster on the data for more significant cost savings. Using only historical data gets manufacturers and retailers in big trouble.
Ideally, an alliance between manufacturers and retailers involves sharing real-time (or at least weekly) data to make rapid production and order adjustments. If they can peek at real-time retail on-shelf availability, manufacturers can use this information to prepare themselves without taking a “wait-and-see” approach to orders.
Often, the parties resist this level of transparent information sharing because it causes volatility in orders up and down the entire chain. Nevertheless, adapting to the fluctuation in our planning produced by data is better than the major inventory glut we are currently suffering.
4. Excess inventory reduction techniques
The retailer´s inventory reduction strategies are well-known:
✓ Bundling, Repackaging (bundling) or Rebranding
✓ Product discounting campaigns
✓ Send the products to the suppliers
✓ Give away inventory as a donation for a charity accounting write-off
✓ Selling on the gray market (which can’t be done with helmets due to certification restraints)
5. But what about techniques for manufacturers to alleviate excess inventory?
✓ We can reduce orders for materials that are not needed in the short term
✓ Implement data-driven communication up and down the supply chain, as mentioned earlier
✓ Prioritize the manufacturing runs that take advantage of your current component stock
✓ Be extra forward-thinking and invest in R&D that lengthens the expiration period of your product’s materials
✓ Collaborate with entirely different industries to share raw materials sourcing
✓ Find alternative customers in other industries for the excess components
✓ Get paid in advance for orders to minimize speculative demand
Our future depends on using systems and “going back to basics”
Protective gear is a cutting-edge technology-based safety product. Smaller and more conservative companies can build a solid base for the entire industry.
While it is true that companies need to improve communication throughout the supply chain, adjust for seasonal demand (which is becoming more challenging with the drastic climate changes), and improve forecasting and inventory tracking systems, the most detrimental factor in our industry's crisis has been players with skewed agendas.
If we build our industry on solid market principles, we will withstand small and even significant dips in consumer demand. Now that the playing field is being rebuilt, I am more hopeful about our sector. Nevertheless, recovery will take a long time.
PHOTO CREDIT: SILVAN POLTERA
https://www.poltisphotography.com/
https://www.instagram.com/silvanpoltera
.jpg)
.jpg)