Considering Inventory Strategy: Custom-Made vs. Pre-Produced Stock for Your Business Decision. Which Approach Aligns with Your Brand's Needs?
Navigating the fashion world can be a challenging endeavor, especially when it comes to deciding the best approach for inventory management. One question that's likely crossed your mind (or will soon) is, "Should I invest in upfront inventory, or should I produce items only when I have orders?" Let's dive into the muddy waters of this subject, as we explore the intricacies of inventory and how it relates to your sales channel.
To help you find the answers you're looking for, we'll take a peek at three popular sales channels—online sales, brick-and-mortar stores, and wholesaling—and see how they affect your inventory strategy.
Online Sales
When it comes to online sales, you'll find that the answer varies depending on whether you're selling your merchandise through your own website or third-party platforms like Instagram or Facebook.
If you're selling directly to customers online, ask yourself this question: "Is my customer okay with waiting six to eight weeks for their order?" Some clients may be more than willing to wait, especially if you offer incentives like branded swag or discounts on future purchases. If your garments possess an air of exclusivity and complexity, your customers might appreciate the made-to-order approach.
However, if your product leans more toward commodity items, such as yoga wear or athleisure, chances are your customers are in a "buy now, wear now" mindset, and you can't afford to ask them to wait. This is especially true if you're drop-shipping through a third-party platform, as you need inventory ready to ship the moment an order comes in.
Pros
- Get paid right away when someone places an order
- Keep 100% of the income (unless drop-shipping, which splits the income 50/50 with the third party)
- See, in real time, how your customers respond to each style
Cons
- Investing in inventory prior to knowing how well it will sell is a significant risk (pre-orders help mitigate this risk)
- Making something in a color or fabric that no one wants leaves you with excess stock
Brick-and-Mortar Sales
The clear answer for brick-and-mortar stores is simple: to sell merchandise, you need inventory. However, there's an exception worth exploring: hosting a trunk show. A trunk show is a one-to-two day event where you showcase your upcoming collection and take pre-orders. Trunk shows are often held at boutique or retail stores, and while you'll split the income with the store or boutique, your personal presence and knowledge of your collection can help close sales and attract customers.
Pros
- Get paid upfront
- Build a personal relationship with your customers
- 100% of the income if not co-hosting a trunk show (otherwise split with the hosting store)
- Gain insights into how customers respond to each style
Cons
- Invest in inventory before knowing how well it will sell
- Risk making items in colors or fabrics that no one wants, and dealing with inventory you'll have to deeply discount
- Setting up a physical storefront is costly, including build-out, overhead, staff, and full inventory
Wholesaling
Wholesale is by far the category with the least financial risk when it comes to inventory. However, it does involve splitting the profits with a retailer, as you would with a trunk show or drop-shipping. If you have the ambition to offer numerous SKUs every season and invest in development, wholesaling could be a good fit for you.
When you wholesale your collection through a showroom or sales rep/agent, the retailer will place an order, giving you three to six months to fulfill it. This arrangement provides the clearest definition of “made-to-order” inventory. Utilizing a minimum order quantity (MOQ) and a set cost price for each style ensures that you know exactly how many units of each size and color you'll be selling, making budgeting for your manufacturing partner and raw materials simpler.
Pros
- Time: You'll have three to six months to manufacture your products
- The retailer pays for the garments when they receive the order (sometimes before)
- No need to deal with markdowns or overstock; retailers take on this risk
- Detailed budgeting due to knowing exactly how much you'll be selling
Cons
- Need to sell at a price that allows the retailer to make a profit
- Typically pay a commission to a sales rep or showroom
- Finding a channel to get your merchandise in front of store buyers can be challenging
In the end, we hoped to make this thorny question a little less daunting. It's essential to have a plan in place before diving into the manufacturing process, and we're here to help you find the strategies that best suit your unique situation. So don't hesitate to give us a call at our phone number or reach out to us at our website/get-in-touch/!
Insights on Inventory Management
When it comes to managing inventory, online sales channels offer more flexibility for implementing made-to-order models due to direct demand capture and production on confirmation, which reduces the financial risks and costs associated with holding large upfront inventory. To streamline inventory management, real-time inventory tracking and demand forecasting systems are vital, ensuring that all platforms sync and preventing overselling or stockouts.
Brick-and-mortar sales generally necessitate upfront inventory, as customers expect immediate access to products. To optimize stock levels and meet customer demand quickly, pre-season stock audits, strategic reordering, and demand forecasting tools are essential. Made-to-order is less common for brick-and-mortar stores.
Wholesaling involves bulk production and stocking ahead of time for prompt order delivery, making accurate forecasting and coordination with wholesale partners crucial to avoid overproduction or stockouts. Automated inventory management tools that integrate with ecommerce platforms are essential to manage backorders and production schedules efficiently.
- Emerging designers in the fashion industry must carefully consider their inventory strategy, especially as it relates to fashion-and-beauty lifestyle small-businesses and entrepreneurship.
- The approach of manufacturing items only when there are orders (made-to-order) can be more suitable for online sales, particularly for exclusive or complex garments where customers are willing to wait.
- For brick-and-mortar stores, wholesale, or dropping-shipping through third-party platforms, it may be necessary to invest in upfront inventory to meet the immediate needs of customers.
- Entrepreneurs in the fashion industry can leverage opportunities such as trunk shows or hosting events to promote their brands, engage with customers, and gain valuable insights about their preferences.
- To make informed decisions about inventory management, entrepreneurs may benefit from using real-time inventory tracking, demand forecasting systems, and automating inventory management tools that integrate with ecommerce platforms.
