Business Analytics: The Next ‘Must Have’ Item For Fashion Companies

Chris Mark

Analysis by Anurag Gupta, SAP Performance Benchmarking

From New York to Paris to Hong Kong, the fashion industry lives on the cutting-edge of design, continually re-inventing itself.  Every season, fashion companies launch new styles, fabrics and colors into the market.  The market’s reaction decides which ones go to production and which ones become hits – the next “must have” items for trend-setters everywhere.

Nonetheless, sensing which designs to mass-produce is only one element out of many that ultimately determine success for fashion companies, and whether they make money or not.   For instance, fashion companies also need to forecast the sales for every single SKU associated with a potential hit item – every color, size and fit variant of a design. The stakes are high, since unsold products at the end of season are either sold at huge discounts, or destroyed in an attempt to protect the exclusivity of a brand name.

All of which, makes it even more surprising that, on average, fashion companies are behind relatively similar industries when it comes to their use of business analytics tools, according to SAP Performance Benchmarking analysis.   Specifically, fashion companies on average are able to track fewer strategic KPIs, and less ability to drill-down for important analyses, than their peers in the retail and consumer products industries.  (See the chart below.)

Fashion Analytics chartOf course, fashion companies have a uniquely hard time getting an accurate and highly detailed read on supply and demand in their world.  Not only are trends and taste fickle, most companies have a procurement lead time of 6 to 8 weeks, making it very hard to anticipate and then respond strategically to lower or higher than expected demand for certain SKUs or styles.

Nevertheless, some fashion and clothing-design companies are setting a new standard. Under Armour, for instance, is able to plan in detail for the next 3-4 seasons by collecting critical market forecasts and inputs in quick and accurate manner. Similarly, at Bluefly, a fashion-oriented Web site, business intelligence tools help its marketing team monitor the performance level of multiple marketing channels, in near real-time, to identify the best- and worst-performing partners and affiliates.  Perhaps most prominent of all, Zara, owned by Inditex, reportedly is able to take information from the shop floor on changing demand and get new designs to stores in a week.

What do the best-practice ‘business intelligence’ approaches look like?  Based on leading examples from fashion and many other industries, five key characteristics consistently stand out:

1)     The business analytics system provides visibility into multiple parameters, such as color, size, style, season, theme, and so on.

2)     The technology enables optimization of markdowns to improve profitability and reduce inventory.

3)     The system has the ability to predict performance of new products (even with no sales history) by leveraging attributes like color, collar size, etc. from other products.

4)     There are user-friendly tools to collect information from key people in the organization, bringing more accuracy to plans.

5)     The system can handle large amounts of data, including information from social websites such as Facebook and Twitter, to give companies a richer sense of what people are saying about fashion trends, products, strategies and brands.

The impact can be dramatic.  In consumer products, for example, SAP Performance Benchmarking shows that companies with the greatest use of business intelligence have on average 54% higher operating margins than companies with low adoption.[1]  With that kind of value on the table, BI may just be the next hot trend in the fashion industry.

[1] Source: Consumer Products Industry Insights based on SAP Benchmarking 2012. N=51

SAP’s Performance Benchmarking program is a strategic service sponsored by our Value Engineering organization. Originally launched in 2004 the program has more than 12,000 participants from more than 4,000 companies and studies available in 12 languages. Participants receive—free of charge—customized and confidential benchmarking comparisons against industry peers as well as aggregate analyses. To participate in the SAP benchmarking program, go to the Value Management homepage.

Chris Mark

About Chris Mark

Chris Mark is the Executive Director, Design & User Experience at SAP. His specialties include business strategy, program management, management consulting, go-to-market strategy and strategic planning.