The latest and greatest technology tools promise to boost forecasting reliability and accuracy in shortened lifecycles, competitive selling environments and more comprehensive style and colour offerings. Some vendors also focus on helping the retailer better understand consumer moods, emotions and buying patterns - years in advance.
Fashion companies with their fingers on the pulse of fads are setting the standard for a whole new apparel industry.
Retailers like Zara (who reportedly gets new product from concept to shop floor in 10 days) have consumers conditioned for a constant stream of exciting updated fashion-forward offerings every time they enter a store - even if they're shopping as frequently as every week. This puts apparel companies under the gun to shorten product lifecycles, reduce inventories significantly and create more efficient procurement processes.
"Many companies focus only on the present and lose out on the big picture," says Kristine Oustrup, managing partner of Style-Vision which is based in the French city of Nice.
"Companies are not very skilled at anticipating long-term future trends or how they should evolve their strategy to meet consumer expectations two to three years down the line."
Historically, however, forecasting accurately has required a minimum of two years trending data. This is especially true in seasonal or fashion environments in which styles and selections normally change over time, according to Antony Karabus, CEO and founder of Karabus Management.
In order for companies to take a stab at guessing demand for items with no history, retailers have had to try to find SKUs that would behave in a similar manner, apply that history to the new item and extrapolate demand, he says. These types of guessing games haven't been the panacea to the forecasting problem and in fact have done little to bringing us closer to understanding what, at the end of the day, a consumer will buy.
"Forecasting is a 'crystal ball activity' at best," says Jean Gipe, director of the apparel technology and research centre at California State Polytechnic Institute. "You have to have some means to really know your customer well enough so that you know what their response will be to your product line."
"When you do overseas production way in advance of a selling season you have no opportunity to watch sales trends and adjust what is actually produced to be more in line with how merchandise is actually moving."
Shopping behaviours have evolved
Another reason analysis of past data may have reached its limits is that consumers have evolved their shopping behaviours and patterns. They refuse to act in correlation with their demographic profiles and thanks to overexposure of ads, have also lost faith in traditional branding strategies, according to Oustrup.
Instead they tend to make choices based on psychographics and their current status in life - lifestyle choices, financial and marital status, etc. This means their choices aren't as black and white as in the past (ie, people in their 20s tend to buy...), but rather their decisions are based on numerous variables that are not only challenging to pinpoint, but even more difficult to anticipate.
"Consumers want to be excited about a product, price or service and they are more mature and demanding than ever before," she explains. "We call them Mood Consumers."
Add to consumer fickleness the fact that a product is not simply a product. Its desirability and performance hinges on the intermingling of several factors - price, seasonality, promotions, trendiness and more - competing in a particular economic environment for a customer's discretionary income. All of these individual factors impact a product and affect its purchase outcome.
"It's important for retailers to understand base demand so that they can use promotions and price changes as a means to improve desirability and performance without diluting sales and gross margin dollars," Karabus explains.
Finally, a store's rate of sale can affect its ability to accurately pinpoint demand for particular items. It makes sense: the lower the rate of sale, the greater the potential for unpredictability and the more likely you'll guess incorrectly. This is especially a problem for smaller specialty stores, explains Karabus, who notes that in those environments you may only get up to eight units of a given style, which hampers your ability to forecast correctly.
Technology tools
Enter the latest and greatest technology tools (backed by stronger computing power and analytics) that promise to boost forecasting reliability and accuracy in shortened lifecycles, competitive selling environments and more comprehensive style and colour offerings.
"The ability to separate the impacts of seasonality, price elasticity, promotions, etc, is allowing new tools to be more thoughtful in their analysis and recommendations."
Perhaps one of the biggest outcomes of these new incarnations is the epiphany that it is possible to forecast fashion, which is a huge mindset shift from the notion that consumers' whimsical fashion savvy is as difficult to forecast as the weather. Now what's holding retailers back is not the technology offerings, but rather their understanding of how to use these insights to make better decisions, says Karabus.
Understanding consumer behaviour
Many vendors, like both The Mix and Style-Vision, don't necessarily address short-term supply chain optimisation and instead focus on helping the retailer better understand consumer moods, emotions and buying patterns - years in advance.
For example, Style-Vision provides information that allows retailers to create consistency in their branding, merchandising and service strategies by addressing several issues: How does the 24/7 lifestyle of the consumer impact the apparel industry? How can we use these ideas to structure a collection, define a positioning and more? What means elegance today and how can we use this notion as a basis for future lines?
Meanwhile vendors like The Mix are two years ahead of the forecasting schedule in terms of analysing one seemingly simple element of a product: its colour. By scanning industries from auto to flowers to paint to determine not only predictions about which colours will be in demand (ie, which trigger a purchase), but also how colour will be used and determined by lifestyle, according to Jackie Nash, publisher of The Mix.
She says the vendor constantly scans the market, updating its predictions every six months, to enable better forecasting decisions at all levels of product development.
Style-Vision also combines trends from different industries including food, hotels, auto and fashion, believing that thinking globally isn't limited to a particular market segment but in fact is a blurring of common themes across different categories.
How can apparel retailers benefit?
How can apparel retailers expect to benefit from new functionalities? First, they can use item-level forecasting of products with short lifecycles to help them manage in-season inventory with tools like markdown optimisation, according to Karabus.
"Once an item starts selling and an item-level forecast is generated, today's tools can consider the impact of planned promotions and possible price changes to determine how to generate gross margin dollars while achieving inventory goals for each item," he says.
"In the short to medium term we expect that short lifecycle item-level forecasting will help in the pre-season development of assortments at retail." In other words, look for higher gross margin dollars and lower inventory risk - the primary reason you need forecasting tools in the first place.
Secondary benefits include the ability to create and build stronger loyalty among consumers, as well as a more consistent product and service offering. Not only that, being a smarter forecaster can help you identify new business opportunities and bolster communication with your business partners. The even better news is that you'll see some benefits very quickly. Karabus says to expect markdown benefits as soon as three to six months and those from assortment in starting in as soon as 18 months.
Beyond the quantitative, apparel companies need to get in touch with consumers' inclinations, tendencies, passions and more. While inherently less predictable, new tools are getting closer to perfecting the process.
"Forecasting tools typically focus on past quantitative data, but the fact is that the past does not always reveal the future behaviour, especially not in a world of Mood Consumption," says Oustrup. "Manufacturers need to stop relying on input from their clients and start thinking and innovating themselves. This requires new resources and the manufacturers have to be ready to invest. Otherwise their only sales parameter is price."
Look for other advancements and improvement in pre-season forecasting of short lifecycle items, better connections between functionalities like item, store, colour and more.
"Short lifecycle item-level forecasting is still in its relatively early stages and few vendors are able to offer a consistent, proven tool," says Karabus. "For the leading apparel retailers using forecasting technology, they are able to manage their inventory better at a local or regional level which is allowing them to generate greater profitability today than their competitors."
New solution offerings
Apparel companies not on board with new technology may want to invest soon - especially with exciting new solution offerings anticipated over the next year or two thanks to continued R&D investment by solution vendors (not to mention that every day you wait is another day of improved efficiencies and profitability
Providers like Style-Vision are looking to enhance an apparel company's ability to better understand consumers and thereby more accurately anticipate their behaviour. Specifically the technology vendor expects to integrate more sensory dimensions like music and fragrance into its offerings to give an expanded view of consumer moods in the future.
Don't think your problems will be solved once you invest in the hot new technologies - that's simply an early stage. Now you've got to use it, which means getting your company beyond the psychological hurdle of change, says Karabus. "People have to be retooled," he says. "Your company has to make a decision to do this. How committed are you? If you don't believe in the system, your people won't use it."
Regardless of how advanced or extensive its offerings, technology can only do so much and its power is really limited (or maximised) by the efforts and dedication of the people operating them.
"At the end of the day, the very best forecasting technology will not be effective without the organisational buy-in, staff accountability and commitment to the changes, as well as the design and implementation of the process changes and key metrics needed to manage and measure change and results performance," says Karabus.
"Retailers need to learn how to bring technology to life and make it part of the company and integral to the roles and accountabilities of the people working with the tool - not just another piece of software."
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