Fashion: 45% Sell-Through & 40% of Marketing Budget on Sales PR

Source: India Times, Aug 2011

Fashion business enjoys healthy gross margins but the sell-through rate (percent by volume of merchandise that is sold at full price) for most Indian brands is low-45-50%.

This dampens their overall profitability and long-term viability. On top of discounts, retailers end up spending more than 40% of their annual marketing budget on communicating the announcement of sale.

Fast-fashion, which ensures that designs move from catwalk to store in the shortest possible time, has been cited as an effective tool to combat such planned customer behavior.

While it reduces incentives for consumers in multiple ways, rapid production reduces gap between demand and supply and decreases the probability of excess inventory.

Enhanced product design, on the other hand, gives customers a trendier product that they value more, making them less willing to risk waiting for a sale. Zara, H&M and Mango have been implementing this strategy successfully.

Consider this: Zara churns out more than 11,000 designs in a season, compared to only 2,000-4,000 items that its competitors offer. End result: Zara’s customers visit the store 14 times on an average per year, compared to 3-4 visits per year at traditional chains. Sellthrough rate for Zara is 80-85%. But such an approach needs a lot of planning, determined execution and meticulous monitoring.

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