Victoria’s Secret Chief Financial Officer Timothy Johnson said the company should regain the supply chain confidence to chase trends next year.
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Many retailers are offering heavy discounts to cut down unusually high inventories.
Victoria’s Secret execs said supply chain woes means it can’t ‘chase’ trends, adding to the pileup.
The brand expects to get back to trend-chasing next year, and to get faster from there.
Fashion retailers have been missing an important tool for the last couple years, which may partly explain why inventories have been elevated and the appearance that everything — especially apparel — is on sale.
“When the business was at its best, we would start the season, the fall season, with 65% of our money spent and 35% of our money opened to chase,” Victoria’s Secret CEO Martin Waters said at an October investor day, according to a transcript from Sentieo.
“Chase” is the CEO’s term for seizing on trends and consumer preferences. A few weeks into a new season, the brand would use sales to determine what styles to order more of and what styles to ditch.
“It means you don’t buy the losers, and you buy more of the winners,” Waters said. “During COVID, forget that, tear that playbook up completely.”
It’s quite the about-face from before the pandemic, when many retailers were consciously working on decreasing their “lead times” — the time from when a design starts to when it hits the store. Brands like Nike, Kohl’s, and Ralph Lauren were laser-focused on shaving days and even weeks out of their lead times in order to be more responsive to consumer preferences. Back in 2017, Nike was trying to get 60-day lead times down to 10 days.
But last year, products were spending 80 days just in transit from the factory to the warehouse — not including design and manufacturing time.
Brands can’t chase trends successfully if they lack any semblance of certainty on when goods will arrive — certainly the pandemic stripped away.
Factory shutdowns, port pileups, shifting air freight capacity, and materials shortages are just a few of the reasons that retailers haven’t been able to count on estimated delivery dates since the second half of 2020. That means they’re more likely to sell out of the “winners” and have too many of the “losers,” which then lead retailers to offer deep discounts to get rid of them.
And industry data suggests even though the line of ships off the coast of California is gone and most shipping modes are nearly back to normal, retailers haven’t completely recovered. The inventory to sales ratio, tracked by the Census Bureau, is still below pre-pandemic levels. And uncertainty around COVID policies in China and labor issues in the US could keep apparel brands from trusting supply chains to remain smooth for at least a little longer.
Victoria’s Secret Chief Financial Officer Timothy Johnson said on a Thursday earnings call that the company should regain the supply chain confidence to chase trends next year. And total inventories will be down somewhat early in 2023, he predicted.
Waters estimated that Victoria’s Secret is currently able to use the “chase” model for 5% to 10% of its stock. And at the end of the third quarter, the company’s inventory was up 21.8% year-over-year.
The plan for the future though, is still to get faster. The company is working on transitioning to digital design methods, incorporating artificial intelligence into the planning process, and using digital samples instead of physical ones that must be sent from factories to design offices — shaving off precious days and weeks of the design process.
That precision, if they achieve it, could mean more profits for retailers and fewer discounts for consumers, but it’s a big “if.”