The retail calendar is different this year, particularly in fashion, consumer goods and electronics.
The old retail calendar
In Pre-Covid times the best period of the year for sales at the best margin was the September to December period. This encompassed the spring releases for fashion, new tech releases (new iPhone etc) and updated model releases in other goods following the Northern Hemisphere summer.
In terms of the fashion industry, this meant much of the year was focused around getting the Spring release right across the Precision Matrix. The following are the key aspects that work together to drive the precision in investment required to be profitable in a fashion business:
Getting the Precision Matrix execution right on a consistent basis among the changing trends and customer desires could also add value to the brand as discounting is not required to move stock and limited availability of items can add to the mystique of brands and their reputation. This could even lead to some brands setting trends that creates further control over the Precision Matrix and stability in performance.
The impact of Spring
Historically, fashion businesses that had working capital issues from poor performance could bounce off the back of a good spring that could then fund the following summer and winter creating further momentum.
The opposite would also be true where businesses that manage the Precision Matrix poorly are unable to fund spring collections/stock and would find it very difficult to compete selling older stock that could lead to a distressed sale or insolvency. The balance between the art of fashion designer/creation and the structure of the Precision matrix is often a battle that can break the business if not managed properly.
The new retail calendar in all its discounted glory
Even before Covid the emerging international events of Black Friday (26 November) and Cyber Monday (28 November) driven via social media across the Pacific from American markets were becoming more relevant opportunities for retailers particularly online.
Initially, these sales were an opportunity for local retailers to move slow moving stock via discounting or to drive further customers to online offerings and build databases. However, customer attitudes to these days have changed resulting in increased international competition across categories and customers expecting specific stock offers (on items that have been at full price for at least six weeks or the ACCC may ask questions). Offers designed to reducing excess stock having less impact unless used a heavily discounted bait.
Click Frenzy joined the retail calendar revolution in November 2012 and started on 9 November 2021 this year.
This meant the discounting/sale season in Australia started on early November with Click Frenzy and will continue through Black Friday, Cyber Monday into Christmas sales. Then follows the Boxing Day and holiday sales.
Retail margins that have battled through Covid may be under pressure for the next few months.
Supply issues & timing
Previously, retailers particularly in light weight goods (fashion and some consumer areas) could access stock from suppliers/manufactures across Asia in a few days.
This led to an ability to effectively store stock at the manufacturer until required and stock being delivered direct to store, eliminating warehouse storage costs and simplifying stock management.
Covid has impacted supply chains from supply terms to transport and distribution, particularly for supply for Asia or good impacted by Covid (such as vehicles).
Below sets out some of the current issues and the impact of operations requiring retailers to be superbly organised and flexible managing live stock and supply issues.
- Supply – Many suppliers from Asian regions are operating on reduced capacity due to energy and workforce restrictions arising in local areas due to COVID management strategies and lower availability of base materials. So they are only interested in “good client orders” being clients that are willing to pay at a good margin for the supplier and pay on time.
For a retailer that has had reduced revenue during a lockdown this has diminished the ability to order stock, sell it and then pay the supplier creating a working capital funding requirement.
- Distribution – Aside from rising costs there are transport delays of stock coming out of Asia and other parts of the world that has created material uncertainty of stock being able to be received, whether it will be arrive in required timelines and increased costs of transport.
- Working Capital – Adequate funding to meet payment requirements of suppliers and increased costs of transport, distribution etc where transport pricing has increased up to 500% for some categories.
- Margin Impact – Customer price rises are occurring but are not necessarily catching all increased costs in the supply chain structure, there can be a drag of up a few months that can seriously impact the final margin of retailers. This leads to some margin erosion even if stock is flying off shelves. Where sales a dragging and costs are higher the stakes are higher.
The overall impact of the above is to create a change in the ordering approach from the last few years, with a return to older style ordering for the season in a larger (if not one) batch to ensure stock is in store and available, rather than drip feeding stock (and the costs) over.
A flow on effect for seasonal retailers in fashion has been having to decide if a Summer 2021/2022 collection is worth the investment compared to the risk — particularly if there is residual stock available to fill stores or sell online.
Hopefully the supply chain issues (predominantly transport), are likely to reduce over the backend of next year but will continue to create difficulties in the interim.
What does all this mean?
It has been a unique year with lockdowns closing retail bricks and mortar for much of the Australia East Coast until October 2021, with staggered openings still underway.
Stepping this out indicates the impact on margin and profitability for many retailers:
For consumers with money to spend, there will be value and bargains offered from many retailers some of which may not be seen again, so its time to support retailers and encourage continuation of the businesses we value.