Tuesday, December 06, 2022

“Strategic” price increases and agility, recipes to beat inflation in fashion

"Strategic" price increases and agility, recipes to beat inflation in fashion

Fashion faces an unprecedented scenario. This traditionally deflationary sector is now battling generalized inflation that affects everything from raw materials to energy, passing through every link in the supply chain. McKinsey proposes to be more selective in discounts and gain agility in operations to try to protect margins, as well as consumers.

Specifically, the advisor proposes five possible solutions to segment the sector. The first is to achieve flexibility in supply to reduce inventory and reduce discounts.

,With less inventory, fashion operators can reduce the problem of surplus merchandise at the change of seasons.”, description of McKinsey. However, some companies in the sector are choosing the opposite strategy because of the risk of potential new disruptions in the supply chain.

Meanwhile, others like Gap have seen their unsold stock levels skyrocket in recent seasons. “for now, The reduced list seems like a far-fetched reality for the region.”, admits the consultant.

Nevertheless, there are a number of large groups that have expressed a desire to reduce the selling rate with a discount to protect margins, such as Victoria’s Secret, PVH and American Eagle Outfitters have organized in recent months.

McKinsey’s second proposal is “to develop the arts”. price ceiling”, that is, to make strategic enhancements taking into account consumer perception of each product on a very small scale, in order to mitigate the fall in demand.

For example, in the United States, men’s suits experienced four times more inflation than women’s suits, according to Bureau of Labor Statistics data collected by McKinsey for July 2022. really, The men’s suits and outerwear segment has increased its prices by 20.8% in the last yearThe biggest jump in the fashion sector, while jewelry and watches registered inflation of only 1.2%, were the least affected.

The third phase of the strategy proposed by McKinsey is accelerating decision making, designed to result in greater operational agility., “This may also be reflected in greater transparency in the cost structure with respect to customers,” explains the consultant.

With fast decision making, Fashion distribution companies can “focus their efforts on pricing strategies that deliver the highest return on investment” (ROI), especially in the case of a sudden increase in response to movements by competitors.

Another McKinsey proposal is to look beyond pricing strategies to avoid rising costs. According to the consultant, the best solution may be to take a step back and “look at other areas, such as design, instead of putting pressure on suppliers.”

eventually, US Consultancy proposes detailed follow up of any strategy taken to protect margins, “Companies should define ratios that measure both consumer behavior and the success of the measures taken,” the company states.

Furthermore, McKinsey cautions that “monitoring should be not only internal, but also in relation to the movements of the competition.” “Inflation is a challenge to delivery, but it also represents an opportunity for those who know how to respond””, concluded the consultant.

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