Retail performance measures for seasonal fashion

Abstract

Retail success can be defined as achieving high gross margins and customer service levels (i.e. being in‐stock) with as little inventory as possible. Forecast accuracy, process lead‐time, offshore/local sourcing mix and up‐front/replenishment buying mix can have a significant impact on success in connection with sourcing seasonal products with a fashion content. Forecast accuracy depends on the characteristics of the product and supply lead‐time. Lead‐times are traditionally long and buying decisions are often made seven to eight months prior to the start of the selling season. Forecast errors lead to some of the items being liquidated at clearance prices while others stockout and lead to lost sales. As a result retailers often resort to higher mark‐up prices with fashion products. However, typical retail performance measures such as service level, lost sales, product substitute percentage, gross margin, gross margin return on inventory, sell‐through percentage and mark‐down rate mask the source of the problems. In this paper, we discuss these performance measures and propose a new one. Additionally, case study analysis of a group of Finnish department stores is presented.