For the role of the merchandise planner, demand planning in fashion retail is a crucial KPI to get right. However, fashion trends and consumer demand are more sensitive and harder to anticipate than ever, with increasingly shortened product lifecycles, and customer spending subject to a volatile market.
Retailers, their brands, and DTC businesses are struggling to adapt to new consumer demand patterns, as traditional inventory forecasting processes are constantly resulting in over- and under-buying and incurring costs associated with holding more stock, and losing sales.
Many retailers rely on historical sales data or moving averages when it comes to demand planning and inventory forecasting; however, this process alone lacks the data insights needed to succeed. Demand planning has, for too long, relied on legacy systems and generic intelligence that fail to help retailers calculate key demand planning metrics, let alone keep up with market changes. On top of this, retail teams siloed from their wholesale partners hold operations back from full visibility across customer demand and shifting stock.
Here, we’ll cover everything you need to know about demand planning and the essential forecasting tools to support fashion brands and retailers in sustainably planning for demand.
What is demand planning in fashion retail?
Demand planning is the process of interpreting historical sales and market trends to predict future sales. Beyond quantity accuracy, demand planning considers strategic business decisions, factoring in the timing, location, and distribution of perceived demand to best serve different customer segments. Demand planning involves the complex analysis of data to identify emerging patterns and create insights to base inventory decisions.
What's the difference between demand planning and inventory forecasting?
While the terms are commonly used interchangeably, there are slight differences between the two. Inventory forecasting is the analytical process of predicting future customer demand using statistical methods, while demand planning uses these forecasts to make business decisions about inventory, production, and distribution. Forecasting provides the numerical predictions, while planning translates these predictions into actionable business strategies.
How does assortment planning differ from demand planning?
Assortment planning is a critical aspect of demand planning, involving determining the range of products in specific collections or seasons that are available to purchase. Assortment planning includes selecting the right mix of products, in their right styles, colors, and sizes, to align with consumer preferences and brand identity, to maximize sales and profitability.
Why is demand planning software important for retailers?
One of the most important reasons for investing in demand planning software is to protect profit margin with the correct buying and size quantities - a task that manual tools alone cannot achieve. Demand planning and forecasting platforms often use automation and AI technology to perform sophisticated data cleansing techniques that optimize size availability with perceived demand.
This ensures that historical data accurately reflects true demand patterns, not just sales numbers. So, when planning for accurate size availability and determining correct size curves, Style Arcade, for example, automates quantity recommendations using the True Rate of Sale (TROS) method.
To understand this, consider that many retailers compare the sales units versus the intake units in each size across a given timeframe to determine the rate of sale, and make their new size ratio decisions based on this. However, this method does not take into account if a size sold out, if the product was discounted, or how aged the stock was. This is not the true rate of sale - and generic intelligent tools cannot calculate this at scale.
Demand planning software, like Style Arcade, is the solution to providing exact size curves using TROS metrics at the level and pace required by modern retail.
Top strategies to improve fashion demand planning
Use data-driven forecasting models
Implement retail intelligence tools to forecast demand based on complex variables. Style Arcade’s Product Forecasting tool assists in reducing lost sales on best-selling, core, and seasonal styles by offering intelligent stock recommendations designed to meet demand and boost profit.
Improve cross-functional collaboration
Ensure merchandising, buying, marketing, and supply chain teams are aligned, with access to all data, ideally in one platform like Style Arcade. Collaborative planning helps avoid silos to improve communication and information sharing, ensures marketing campaigns align with inventory, and allows for faster decision-making.
Get visibility on future cash flow
Tight cash flow across the fashion industry makes forecast accuracy and demand planning essential. Overestimating can tie up capital, and underestimating leads to lost sales. Style Arcade’s Product Forecasting tool allows merchandise planners and buyers to see when sales are set to peak and trough, to assist them in driving revenue through smarter stock planning and financial alignment with sales events.
Measure, monitor, and reforecast often
Continuous analysis and flexibility are critical for staying responsive. Adopt a flexible planning approach that allows for frequent reforecasts and regional adaptations, and tailor assortments by location, channel, or climate to increase full-price sell-through.
Leading global brands and retailers like Ralph Lauren, Princess Polly, and The Iconic have chosen Style Arcade to power inventory forecasting accuracy by product, size, and location based on True Rate of Sale logic to complete thousands of product lines in seconds, not spreadsheets.
Find out more about Style Arcade's Product Forecasting
Image credit: Style Du Monde
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