There’s buying, and then there’s buying for growth. Michaela Wessels, CEO and Co-founder of Style Arcade shares how to build a robust buying strategy that backs your winners, and really moves the needle.
1. Tier your quantities
Gaining considerable growth and business expansion relies on creating a tiered buying strategy. Essentially, this is where you’re making use of different levels of depth per option, as in, the number of units you allocate to each style.
When most fashion businesses first enter the market, there is no historical data to base their decisions on, so often they allocate the same number of units to every style.
For example, they may have 100 styles, and place 50 units in each. Spreading their bets, and playing roulette. And look, perhaps a relative relationship could develop in this scenario and become an interesting story for the brand… but more often than not it’s just a story of flatlining.
This practice is highly limiting, because as a rule of thumb: 20% of styles will make 80% of your sales. If you launch with 100 styles, by the time you hit the 6-week mark, you’ll find out the 20 styles that have made 80% of your sales. And guess what? Now, they’re probably sold out, and what you’re left with is 80 styles that will hang around until the end of season sale.
Pick the winners
To make more sales and avoid your winners running out of stock, you need to pick the top performers early and place more units behind those styles. If you don’t, it hinders growth; you will never know a top style’s true selling potential if you’ve only bought 50 units. It’s never too late to start exploring what’s working, and what isn’t.
One of my favourite examples was recently when a well-known Australian brand had an incredible quarter, due to an error in the initial purchasing of style. They had far more units than ever before - 500 units of every styles - but what they uncovered was their true sales potential. It was an eye-opener for the brand, who managed to triple their sales that season.
Understand your rate of sale
Not to be confused with sell-through rate, Rate of Sale (ROS) is the average number of sales made in any given period.
Rate of Sale (ROS) is the average number of sales made in any given period.
So to understand your Weekly Rate of Sale (WROS) first work out how many units of a product you sell on average per week. From there, you simply add 20-30% on your average rate of sale to estimate your upper threshold, and minus 20-30% to determine your lower threshold.
For instance, a smaller brand may sell 25 units, per product per week. Your high quantity will be 30% more than 25 units, and your low is 30% less than 25 units. This is your starting framework.
It’s a basic start, but it’s a must. For example, if those top styles start moving 40 units per week and selling out in 2 weeks, you can simply adjust your high, mid, and low quantities for the next season, based on your new rate of sale. Then you get exponential leverage season on season.
The biggest mistake you can make is to keep your units flat. You need to have a considerable level of disparity between units so at the end of every season, you can readjust and recalibrate for the next. Start small with 20% adjustments on your average rate of sale, and keep an eye on it as you go.
2. The 80/20 Rule
More commonly known as the Pareto principle across different industries, that generally suggests that 80% of results come from 20% of inputs. In fashion buying and merchandising, it’s 80% of your sales that is made up of 20% of your styles.
Focus on your 20%
If you’re a massive fashion brand and you’re buying 500 styles per month, and you have customers in that space - pick 100 that will make you the most sales. Pick them, understand why you’ve picked them and be able to validate them when you’re in the buying meeting.
Once you’ve convinced everyone with your learnings, back these styles with depth. And this rule applies to smaller brands. If you launch 50 styles per month, then you only need to allocate the 10 styles that need to be the winners.
This will lead you right down the path of growth because you’re able to see and identify what the outstanding styles are, and therefore make more sales.
How to identify best sellers
Well, your first port of call is data. Your historical performance should help identify a number of patterns, including what silhouette your customers love, and want more of. Take the Burberry trench coat, for example. This is an iconic product and silhouette that never fails to sell like hotcakes on a mass-market level, year on year.
Secondly, every brand has a signature something, whether that’s a Victoria Beckham cap sleeve dress, or a ruched body-con dress. So, once you’ve identified your most popular shapes and chosen your best-sellers for your next season, you can simply repeat the block in the season’s hottest print or colour. Or, identify a print that works, simply milk that print in different silhouettes to appease your wider customer base. Take the historical attributes and simply rework them based on their past performance.
Determine price point
There’s a top, middle and bottom price for every collection. To get the most bang from your best-selling top 20% of styles, you have to hit a sweet spot for your customers. Understanding your pricing strategy and determining that median price they’ll be happy to part with for the styles they really want, means you can allocate larger volumes of where it hits, and cover your margins.
You’ve also got to have a set of styles that are highly commercial, that is to say, they come in either black or white. You might choose to back high volume behind a seasonless black style. Obscure colours don't generally sit in this high volume category unless they’re completely aspirational. Like the sold-out Jacquemus Yauco two-tone bodysuit. But, guess what? It’s available in black.
3. Extend your size curve
Extending size runs can create growth. However, this is not true for every brand - only data will tell you whether to extend your 6-14 to 4-16. In short, if you look at your ratio and the end sizes are more than 15% of total sales, then there’s an opportunity for you to add a fringe size.
To test this, make sure you look at the commonalities in the silhouettes and colours where you want to introduce the fringe size. If all the styles selling in size 14 are colour-blocked, the future range indicates a Size 16 is needed. In the same token, if Size 6 is predominantly selling disty floral prints, there’s an indication you should extend to a 4, but there’s no indication to extend at the other end to 16.
For example, we had one brand showing that 28% of sales on a particular category were coming from XS. The sales dropped off like a cliff for the larger sizes, thus there was a clear opportunity for an XXS. In the team’s next buy, they added in an XXS opening up a sales revenue door amounting to $1.1million annually for them.
Always question, and always validate. If a brand has a blanket approach of sizes 0-18 for every style, you’ll end up with wasted stock and markdowns in sizes that nobody wants. It pays to be sustainability-minded when creating your curves, and if you get push-back, listen to your customers and adjust accordingly the next season.
4. Determine never-out-of-stock styles
Fashion merchandising best practice entails constantly keeping an eye out to identify your core products. These are your non-seasonal, commercial, off and on-trend styles that generally live longer and sell no matter the season. Even the biggest high-end brands have their core products; think Louis Vuitton’s Neverfull tote or the Gucci Marmont belt. These brands stock these products year-round, it’s the one thing that most customers go to them for, and ultimately it’s what they’re known for.
No matter the size of your brand, it’s essential to have your ‘bread and butter’ styles to enable your business to grow. These styles, that you purchase in high volume, will result in great margin because you’re ordering every year in a large number.
Additionally, the great thing about being online, is that you can hide 40,000 Gucci belts behind one little placeholder image - the image that assists with an 80% conversion rate. Imagine the same thing in a store… racks and racks of one style? It’s a totally different experience.
Identify your never-out-of-stock lines, because every brand has their Gucci Marmont belt.
Most fashion brands we work with have a 20% portion of styles that live year-round and cushion their bottom line. If you’re just starting out, look for the items that are non-seasonal. If they’re selling out, start to repeat them every 4-8 weeks, and repeat again. All of sudden, you’ve got your first core style.
It’s important to have dependable styles to secure your sales budget. Yep it’s boring, but when you find the product your customer will buy again and again, and your business is growing, well, that’s not boring at all.
5. Proactive markdowns
Markdowns. We get it.
No one likes to think or talk about it. We all know it’s painful discussing how to best give away profit dollars. But that’s the reality. And having a markdown strategy from the get-go will ensure success in terms of sales, margin and inventory management.
The best performing brands face their markdown pricing head-on because if not, they’ll accumulate inventory by ignoring the fact a product isn’t selling. There they’ll sit, waiting all season long for sale time.
Some of the biggest eCommerce businesses acknowledge this from product launch. Shopbop is famous for having discounts on the New Arrivals page, because they know the value of clearing inventory early.
Also, consider discounting weather-appropriate styles at the peak of the season. If you mark down a pair of shorts at the end of the summer, you’ll have missed the weather and are now stuck with the units. Discount when it will actually move the needle and don’t be afraid to avoid aged inventory - just think, you could sell out before end of season sale at 20% off, rather than waiting for 40-60%.
Many brands avoid associating new arrivals with poor performance. Acknowledge the poor performers early, and create an archive page, or simply take them out of New Arrivals after 6 weeks and into Sale.
In the end, what’s more brand-damaging than giving away 70% discounts?
Clear as you go (CAYG) is a retail markdown strategy that means acknowledging the slow movers at the 6-week mark and discounting them early.
In the long run, this will actually leave you discounting less, saving your business margin, and freeing up cash flow. It really is a win-win.