retail

7 Easy Steps to Set Up Your Supply Chain Correctly

Learn how to set up your supply chain and manage your inventory correctly from the start

Supply chain is incredibly daunting, especially if you’re new to it. While it might seem confusing and complicated at first, you can tackle this complex field by breaking it down into a series of simple steps. 

1.       Choose Your Inventory Assortment

This is where your genius as a founder comes in. You know your customers best and you can use your judgement and qualitative insights to hone in on that next best thing. Of course, if there’s any data you can use to supplement your intuition (like what’s sold well in the past), we encourage you to do so!

We always recommend that young companies start with a simple assortment of SKUs. You can always add more as you grow, but it’s incredibly hard to manage a wide product assortment right out of the gate.

2.       Forecast Demand

This step is critical because you need to have an understanding of what sales of each product (down to the size and color level) will be. Without this analysis, you could wind up vastly over or under buying inventory. When you’re just starting out, it’s completely OK to use an Excel model. Hopefully, you’ve taken our advice and kept your product assortment simple, which will make it easier for you to forecast demand.

However, as you scale, there aren’t really any sophisticated tools out there to help you that don’t cost a small fortune. That’s why we created Fuse - to help algorithmically forecast demand at a price point that doesn’t break the bank.

3.       Size Your Inventory Buys

Once you’ve completed your demand forecast, you need to translate this data into an inventory buy and replenishment plan to make sure that you have enough inventory to fulfill expected demand. As a young company, you can’t afford to stock out - it disappoints customers and damages your brand.

To avoid stockouts, you want to link your demand forecast to the inventory you have on hand and the inventory you expect to receive from suppliers in the coming months. You need to order enough to make up for the gap between what you have on hand, what you expect to receive and how much you plan to sell. You’ll also need a bit of buffer just in case.

Many companies do this work in Excel, but Fuse can automate the whole process of translating your forecast to an order recommendation that’s consistent with your buying cycle.

4.       Track Your Purchase Orders

Now that you’ve placed your orders with your suppliers, you’ll need some sort of tracking system to track these POs. If there are delays or something arrives to the factory damaged, you’ll want to make sure to stay on top of it or else you may stock out.

Many companies use Google Sheets, but with Fuse’s PO module, Fuse has a simple way for you to seamlessly track your purchase orders. Unlike a google sheet, once the PO change is logged, we can seamlessly link it back to your current inventory position and demand forecast in order to give you a clear picture of what this means for your business.

5.       Track Your Inventory

Now you know that your inventory is somewhere between your supplier and your warehouse, but the question is, where? Is it on the boat, is it at the dock, is it in the warehouse? Flexport can help you track where your goods are. This type of tracking is critical because there may be delays at customs or in other parts of that shipping process that neither you nor your vendor can anticipate. Having visibility can help you make adjustments and communicate with your customers.

6.       Understand Your Inventory Position

Your inventory has arrived. Now, it’s critical to understand exactly how much of it you have and where it is. There are two possibilities - you can do it yourself at your own warehouse or you can work with a third party logistics provider (3PL). Most young companies choose to work with a 3PL rather than managing their own warehouse. With a 3PL provider like Quiet Logistics, you can completely outsource both the tracking and fulfillment piece of inventory management. While this might seem expensive, unless your core competency as a business or a founder is warehouse management, you may be better off outsourcing.

If you do choose to run and manage your own warehouse, you’ll need a warehouse management system like Fishbowl to help your employees in the warehouse know what’s where and also track goods as they come in. 

7.       Fulfill Your Orders

Finally, your products are in your warehouse and you’re ready to get products into the hands of customers. This is one of the most critical questions in the supply chain. There are two parts to this process - order management part and shipping and logistics.

On the order management side, there are many great systems out there like Stitch Labs that can help you make sure you’ve allocated the right amount of inventory to your e-commerce site, your retail store and your wholesale business. When you process an order from a customer on your website, you want to make sure that you have enough inventory to fulfill that order. You might have a lot of inventory on hand, but perhaps all of it is already allocated to your wholesale channel. These systems can also notify you when you’re running low. As your company grows, you may want to expand into more robust ERP systems like NetSuite. These types of systems are typically what people think of when they refer to an “inventory management system.”

Finally, the shipping and logistics piece is a whole separate beast. Smaller companies aren’t well resourced to do this, which is why a 3PL system can be extremely useful. Not only can they take care of your inbound goods, but they can also pack and ship goods to your customers. There are also new software providers like Shiphawk that can help you and your customers track where the shipment is. This piece is critically important because it’s how your customers will interact with you and your brand, so you want the experience - from packaging, to shipping, to tracking, to delivery - to be flawless. 

Staying sane

As a growing company, to stay sane, you need to take it one step at a time. There are some basic things you can do when you’re starting out to make life easier and help you succeed. First, find a 3PL provider you trust and rely on them to do the blocking and tackling. Second, while going into wholesale can seem attractive, you need to be careful about doing this early on. Working with retailers that are 1000x your size can be extremely challenging and time consuming, so you want to make sure to pick the right partner. Lastly, be thoughtful about how much inventory you buy and how you finance it. Making big mistakes early on can literally take down your company. 

We created Fuse to help companies transition from managing their demand forecasting and inventory planning process in Excel and Google Sheets to using sophisticated software. Start with Excel, but don’t stay there too long. As your business becomes more complex, mistakes become even more risky and costly. Make sure to invest in inventory planning software like Fuse to avoid drastically over or understocking. We’re here to help you focus on your business, not your inventory.

7 Supply Chain Definitions Every Founder Should Know

Closet full of colorful clothes

We work with many young companies started by inspiring founders who often have incredible marketing and branding chops. But, when it comes to inventory, that expertise is hard to hone and hire for. Even if you’re not an expert, there are things you can do like follow our 7 step guide and get familiar with a few basic definitions: 

1. Lead Time 

This is the most basic concept on the list and probably something you’ve already heard from your suppliers. Lead time is simply the number of weeks or months between when an order is placed with a supplier and when the finished good can be delivered. Your fully baked lead time will be not only how long it takes your supplier to make your product, but also how long it will take them to ship it to you. 

2. Minimum Order Quantities (MOQus)

If you’re a small brand, you’ve probably already run into this concept with your suppliers. Minimum order quantity is the minimum quantity in units per SKU, units per category or dollars that your supplier will allow you to order. Although you might do a lot of sophisticated analysis to figure out the exact amount of inventory that you need, it might not matter if this amount is below the minimum order quantity defined by your supplier. While it might not be possible, you should definitely try to negotiate the MOQu down to give you flexibility and avoid holding more inventory than you need or can sell.

3. Buffer Stock (Safety Stock) and Service Level 

No matter how accurately you are, there is always risk that you may have underestimated the inventory you need. To avoid stockouts, companies keep extra stock on hand by setting a service level target which is the probability that all customer orders will be fulfilled. New brands might want to set a high (99%) so as not to damage the brand with stockouts. But, service level does rely on relatively predictable demand which many young brands don’t have. That’s why at Fuse, we rely on a weeks of supply target. 

4. Weeks-of-Supply

Weeks-of-supply is calculated as total inventory / weekly sales. Weeks of supply can be calculated based on historical results or as a forward looking metric based on your forecast. Many inventory professionals consider the forward looking approach to be best practice because seasonality can vary drastically throughout the year. In Fuse, we seamlessly calculate your weeks of supply target and build it into your inventory buffer. We’ll look to your expected seasonality and make sure that you’re always ordering enough for next season.

5. Sell-Through Rate 

Weeks of supply and sell-through, when used together, can help give you a complete picture of your inventory position. Sell-through is defined as total sales divided by inventory stock at the beginning of the period. So, if you sold 500 silk blouses in January but started with 1,000 silk blouses in inventory, your sell-through rate would be 50%. A high sell-through rate and a low weeks of supply number means that you need to restock while a low sell-through rate (5%) and a high weeks of supply number means that you’ve overbought and may need to mark down your inventory. One of the most relied upon concepts in inventory planning, sell through can give you a good benchmark for understanding the health of your inventory. 

6. Reorder Point and Reorder Level

The reorder point is the level of inventory at which a reorder is triggered. This point is calculated as the forecast sales during the lead time plus buffer stock. The reorder point tells you when you need to reorder, but not necessarily how much (the reorder level). Fuse can help you understand both metrics by seamlessly linking the pieces together. We provide a reorder recommendation based on the buffer you set, your lead time and the demand forecast you’ve created using our advanced algorithms.

7. Open to Buy 

An open to buy puts all of the concepts of inventory planning together in one report. It is a budget that highlights how much capital is available to spend in a given period, and how much already has open POs against it. In many instances, a planner may know exactly how much product she needs to order to support demand, but she may no longer have the budget to meet this demand. For example, she might need $150,000 of product next month to reach the brand’s sales targets, but $75,000 may already be allocated to open POs. In this type of example, the planner’s job is to optimize the allocation of the remaining budget to best serve the business. Usually, at this point, the best course of action is to determine how best to optimize margin. The planner will evaluate which SKUs can generate the most profit given the limited budget available rather than simply doubling down on best sellers.

At Fuse, we’ve implemented these concepts and best practices in our software to vastly simplify the analyses that planners have to do. We’re here to help you focus on your business, not your inventory.

Sources: 
https://www.thebalance.com/sell-through-rate-2890389
http://www.threebuckets.com/category/formula-cheat-sheet/
https://en.wikipedia.org/wiki/Service_level
https://www.thebalance.com/open-to-buy-planning-2890318
http://www.businessdictionary.com/definition/lead-time.html
https://en.wikipedia.org/wiki/Reorder_point
http://dictionary.cambridge.org/us/dictionary/english/minimum-order-quantity

What is an Inventory Planner and why is she SO important to your growing brand?

An inventory planner hard at work optimizing the supply chain of a growing brand

Are you an Inventory Planner? Have you ever tried to explain to your friends or coworkers what you do and had a hard time getting them to really get it?

Are you a business owner building a brand who’s been told that you should hire a planner? Have you wondered to yourself, ‘why?’ and ‘what would she help me with?’

If you fall into either of these two buckets, this post is for you! If you’re an underappreciated planner, we hope you can send this to your friends and coworkers so that they truly understand how much you contribute to your company. If you’re a business owner who’s new to ops but wants to scale, we hope we can persuade you to get an inventory planner before you run into a major operational crisis like stocking out of your top selling SKUs.

First, let’s start with some basic definitions. Inventory planners help companies:

(1) Determine how much inventory they need to order. 

Just like Goldilocks, growing businesses need just the right amount of inventory to survive. Order too little and you risk stocking out, damaging your credibility with your customers and harming your brand. Order too much and you can wind up with hundreds of thousands or even millions of dollars of wasted inventory. The capital you invested may be permanently lost, crippling you from investing in other critical business initiatives like products that are selling well or marketing to attract new customers. Inventory planners do a complex optimization exercise every year, quarter, month and even week to make sure that just the right amount of inventory across all products has been ordered.

(2) Determine when the inventory needs to arrive.

It’s not enough to simply order enough inventory, but the inventory planner’s role is also to make sure that it arrives when it’s needed. If a company has a three month lead time, discovering that more inventory is needed the week before isn’t helpful. Conversely, if the inventory will sell through eventually but is just sitting in the company’s warehouse for six months, that capital could certainly have been put to better use. Timing is a critical piece of the planning equation.

(3) Aligning with sales and marketing. 

Marketing and sales are always trying to drive business. A critical input into planning are questions like “what promos are we running this month?” and “what big wholesale accounts do we expect to win next year?” Inventory planners work closely with marketing and sales to make sure that there is the right amount of product to support and prepare for the big wins expected to come from these initiatives. In prior blog posts, we’ve highlighted the importance of coordinating with operations if you’re in sales or marketing. 

So, why are Inventory Planners important?

Well, we hope that after reading our definitions, the picture all starts to come together. Yet, the unfortunate reality remains that inventory planning remains one of the most misunderstood and least appreciated functions at growing brands. 

So, here’s what we think. Inventory is either the #1 or #2 investment that companies make. If it’s #2, it’s second only to marketing. An investment this big, if not managed properly, can and has been the cause of failure. The less capital you have to play with, the more important it is to optimize that investment. While there is a lot to be done downstream in the supply chain, and we’ve highlighted this in our post on 7 supply chain questions you need to answer, the best optimization on the fulfilment side can’t help you if you’ve ordered the wrong amount of inventory. Because of this, the person who plans your inventory - makes sure you’re investing enough and makes sure it’s coming in on time - is one of the most important people in your company and one of the earliest roles all consumer brands should hire for early on. 

Whether you’re an inventory planner with decades of experience or a start-up founder who’s just coming to grips with the importance of operations and inventory, Fuse is here to help you focus on your business, not your inventory.

The 3 things ecommerce brands can learn from Amazon Prime Day

Here's what small ecommerce brands can learn from Amazon Prime Day's success

This year’s Amazon Prime Day was record breaking generating $1 bn in sales. Not only did Amazon beat it’s own Black Friday and Cyber Monday sales, but sales also increased 60% year over year relative to last year’s Prime Day. Amazon continues to dominate e-commerce and will continue to do so for the foreseeable future. But, as we said in our last post, we definitely believe that there is room in the market for digitally native brands to succeed. They just need to compete on a different dimension rather than trying to beat Amazon at the game that it’s mastered - convenience.

As Amazon continues to grow and dominate, we think that Amazon Prime Day has valuable lessons for growing brands that they can apply to their own business models successfully.

(1) The membership model works really really well if you’re fulfilling a real need

While subscriptions of one sort or another have long been in vogue for ecommerce companies, not all of these companies have been successful over the long-term. This year, a record number of customers signed up for Prime Day, demonstrating that the membership or subscription model can work really well, but it needs to have several key components. Namely that the benefits have to be unique, exclusive and drive significant value to the customer. 

The thing that makes Prime Day so special is that it is available to only Amazon Prime members. Most e-commerce subscription providers tend to provide a subscription for the sake of stabilizing their own revenue and cash flow and not necessarily because they offer something unique, exclusive and valuable to the customer. 

That being said, companies like Stitch Fix and Dia & Co. have been successful because they provide exactly that. In the case of a company like Dia, they’re meeting an untapped market need for plus size clothing and have a unique offering in a space where there’s a clear market gap. Literally the perfect use case for a membership model. 

(2) Don’t be afraid to run experiments

In a way, Prime Day is one big experiment for Amazon. The company has used it to test new product lines and releases or supply chain innovations with the focus shifting slightly each year. Once it becomes clear what worked and what didn’t, Amazon can use the plethora of data to improve throughout the remainder of the year. 

While most e-commerce brands do have a strong ethic of A/B testing whether it’s landing pages, marketing copy or other initiatives, it can be hard to run potentially game changing experiments and take big risks as a small company. But, that being said, what Amazon and other successful e-commerce players like Jet have taught us is that big bets can pay off. In an ecosystem where retail continues to be challenged, those who innovate successfully and take bold steps to reinvent their business models even when they seem to be working will be the ones who come out on top. 

(3) Make sure your supply chain and logistics are in order before ramping up marketing

While in the past Amazon has had some technical snafus related to Prime Day, the company has certainly succeeded in making sure everything went smoothly this year. While Amazon has a particular strength in supply chain and logistics, the lessons from its past technical malfunctions can teach smaller brands a thing or two.

Similar to the Amazon example, you don’t want to spend a ton of time, effort and money driving traffic to your site when that traffic can’t convert due to a shopping cart glitch (back in 2016), or, on the supply chain side, when you’re out of the inventory you’re advertising. At Fuse, one of the most common problems we encounter is a lack of coordination between the marketing and the supply chain teams. 

While marketing may launch a meticulously planned, omni-channel campaign, too often we find that these campaigns don’t take into account critical questions like if the campaign has the desired impact, can the company actually fulfill the orders? Will there be enough inventory to satisfy demand? While it seems obvious in hindsight, it usually takes a crisis or two for e-commerce brands to streamline the coordination between functions. 

As your company grows and scales and focuses on putting these lessons into practice, Fuse is here to help you focus on your business, not your inventory. 

Is Amazon eating the world?

Groceries spilling out

Just over 6 years, Marc Andreessen famously stated that “software is eating the world.” In e-commerce today, Amazon is certainly eating Whole Foods, but is it eating the world? While the full implications of the acquisition remain to be seen, there are a few things that we can infer from the acquisition and its impact on both food and e-commerce.

Standalone food start-ups will continue to struggle

Since the first tech bubble, standalone food start-ups have struggled to succeed. In the early 2000s, Webvan, a precursor to today’s Fresh Direct and Instacart went belly-up. There are several key factors that contributed to the start-ups failure, but the main one was a lack of scale. Today, despite being tremendously popular among Millennial audiences, food start-up Maple shut down last month. Others, like Munchery, continue to struggle and may not be long for this world. On the other side, the shining success in the industry has been Blue Apron, which announced its IPO. While some attribute Blue Apron’s success to marketing, we attribute it to a laser focus on implementing operational efficiencies and constantly improving with scale. 
 
In general, that will continue to be the theme. Food (and more broadly, inventory) waste has the potential to take a company down and creates notoriously tight margins. In many ways, Amazon, who has made its name operating on razor tight margins, is the perfect acquiror for a food business that tends to experience these issues to the extreme. 

The war between Amazon and Wal-Mart is about to heat up

With a slew of acquisitions recently - Jet.com, Bonobos, Modcloth - Wal-Mart made it clear that it’s making it’s presence known in e-commerce. Amazon has countered with the Whole Foods acquisition and will start going after the bread and butter of Walmart’s business. Not only that, but given Amazon’s expertise in operating on low margins, it’s actually well positioned to decrease Whole Foods notoriously high prices. This will broaden Whole Foods’ reach and put it in more direct competition with Walmart Grocery shoppers. At the same time, Amazon can offer a slew of other attractive food related services online and in stores. 

But can brands still stand-up to Amazon?

As we look to the broader ecosystem, what does this mean for brands and retailers? Is everyone else doomed? While this may be an unpopular opinion, we here at Fuse don’t think so. 
 
As the competition between Amazon and Wal-Mart heats up, the two will tend to converge into two very similar players with limited differentiation in the consumer’s eye. The number one differentiators will be price and convenience. In many ways, while Amazon’s success has put pressure on physical retail, it’s acquisition of Whole Foods actually validates that physical retail isn’t going away.
 
By 2020, Millennials will account for 20% of retail sales. Unlike prior generations, Millennials are looking for unique experiences and deeper connections to the brands they shop with. While Amazon and Walmart will always win on convenience, brands that work hard to facilitate unique experiences, value props and bespoke feeling (if not actually bespoke) products will continue to speak to Millennials. What’s more, creating these brands online is easier than ever today and there is so much more flexibility in what a brand’s physical presence needs to look like. It doesn’t have to be a fully stocked store, but rather, it can be a showroom or pop-up. 
 
In the early days of e-commerce, all brands were essentially competing on convenience. But, today, as e-commerce becomes more and more ubiquitous, it’s clear who’s poised to win on convenience. In many ways, this can be liberating for brands given that instead of competing on faster shipping, they can compete on delivering the brand experience Millennial consumers are searching for. 
 
In short, we don’t believe that the rest of retail is going away, but we do believe that retailers have to get smarter not only on brand, but also on the operations side. As tools like Fuse continue to grow, scale and become more ubiquitous, brands can help themselves compete against larger players who have vastly more resources. No matter what type of brand you’re building, Fuse is here to help you focus on your business, not your inventory.

What's our ROI?

When we first started Fuse, we had several key hypotheses as to how we could improve the way inventory planning is done by retailers today. First, we were convinced that it’s impossible to plan a growing business in Excel. As the volume of data and the number of SKUs grow, it’s easy to make errors in Excel and, in fact, impossible not to when you’ve linked several spreadsheets and Excel is crashing mid-save. Excel’s capabilities are limited, and thus planners must rely on backward-looking metrics like sell-thru and historical growth rates, which don’t accurately paint a picture of their growing business. Second, an algorithm can better detect anomalies and accurately estimate seasonality than a human whose attention is divided amongst the many other urgent priorities of the day.

After working with our early customers for some time, we’re proud to say that both our hypotheses were correct -- we’ve found that the ROI of using Fuse makes a meaningful, material difference on both the revenue and the cost side.

10% More Revenue

On the revenue side, we’ve found that Fuse helps our customers achieve 10% more revenue. We did a deep dive into our customers’ biggest quarter - Q4. First, we took a look at stockouts in Q4. We defined a stockout as zero sales with 95% confidence. This means that we excluded instances in which zero sales could have legitimately meant no demand for the product. Second, we assumed that our customer’s revenue target for Q4 was equal to actual Q4 sales. In reality, given the number of stock-outs our customers experienced (more on that below), the revenue target was likely most definitely higher than the sales figures actually achieved. Finally, at Fuse, we always encourage our customers to modify the forecast by including relevant details like product launch dates, products that are phasing out, as well as other information they might know about their business that an algorithm doesn’t. For purposes of our analysis, however, we excluded that information. 

Even assuming the above simplifications, we found that our customers could have made 10% more revenue and avoided 450 stock-outs (on average) during Q4 if they’d followed Fuse’s algorithm. In fact, one of our earliest customers who joined the platform in Q4 had zero stock-outs in Q1

What does this mean? Well, for one thing, it means that Excel is definitely not the right tool for growing businesses to plan inventory. In addition, it also means that even without additional input from our customers, Fuse’s initial predictions (based on seasonality) can achieve dramatically better results for our customers.

Reduce Overspend on Inventory by 3x

What we often find with the growing companies we work with is that a significant stock-out in the past, or paranoia about stocking out, leads to panic overbuying. This ties up precious capital and resources in inventory that could be deployed elsewhere. 

In Fuse, we use a forward-looking weeks of supply target to help customers maintain a lean inventory buffer. We often find that many of our customers are managing their buffer using sell-thru (which is backwards looking) or a historical weeks of supply target. For a growing business, these backward looking metrics don’t reflect current trends, and can lead to dangerous overbuying. However, with Fuse, it’s now possible to look forwards instead of backwards, thanks to our accurate forecast and real-time actualization of sales.

We took our customer’s forward-looking weeks of supply target (based on Fuse’s forecast) and applied it to create a recommended inventory buy and replenishment recommendation. What we found was that on average, our customers were overstocked in almost 200 products and spending 3x what they needed to on inventory. By following Fuse’s recommendations, our customers can dramatically reduce their inventory spend and more efficiently manage their working capital, freeing up cash for initiatives that will grow their business, like customer acquisition.

Conclusion

Our data shows that prior to Fuse, our customers were buying not enough of the right SKUs and too much of the wrong SKUs. With Fuse, our customers can switch this around and invest more capital on the right SKUs and less on the wrong SKUs. At Fuse, we’re here to help you focus on your business, not your inventory. 

4 simple rules for streamlining your SKU system

Great idea for inventory

This week’s post is on a definitively unsexy but very important topic, and it was actually inspired by one of our recent conversations with our customer, Snowe. Snowe is in the process of redoing their SKU system, an exercise that almost all of our customers go through as they grow. The main reason this happens is because when you start your business, you’re not quite sure exactly how it will grow and expand. What types of products will you be adding? Will you always stay in your chosen category? 

In the case of Snowe, their SKU renaming was prompted by several factors, according to Erica Peppers, Head of Product Development & Sourcing:

“We decided to overhaul our SKU system because the original structure we started with is no longer the right fit to scale with our business.  The two key components we considered were simplification and easy identification.  The system can be simplified, as our products don't need nearly the number of configurations as a product assortment that is narrow but deep.  Also, because we are not a seasonal or trend based company, our products are introduced with the intention of a long life span.  So rather than being just a series of letters and numbers, our SKU system should provide a reasonable degree of product identification at a glance. ”

While in some cases, renaming your SKUs is inevitable, there are several things you can do to make sure that your new system is successful and lasts you and your company for many years to come:

(1) Don’t rely exclusively on marketing categories

In many cases, we see SKU systems that leverage the marketing category the company uses to communicate with customers about its products. From a marketing perspective, having a clear sense of categories of product and what they mean to the customer is critically important. But, these categories don’t always translate in a meaningful way to the operations side. For example, if you have a children’s clothing brand, you might have marketing categories along the lines of “play”, “sleep”, “celebrate”, and while these are useful to the consumer, the fact that the item is merchandised for play does not mean as much to the operations person as knowing that it is a red onesie at first glance.  

(2) Keep it flat

It’s very easy to create a million categories and subcategories for each of your SKUs, but this causes additional confusion and complexity. Closely tied into the idea of avoiding using marketing categories for SKU naming, the more you can do with less, the better. Taking our baby products company again. We can have a red onesie with the SKU “ONS-RED-01” or “SLP-ONS-RED-01”. The more layers and depth you add, the more confusion and subjectivity you insert. For example, is our red onesie really for sleep, or is it for play? Instead of making it clear to all of your operations staff where the onesie belongs, you’ve now inserted subjectivity into the mix. With subjectivity comes room for disagreement and confusion. 

(3) Make it mean something

While it is possible to use a sequence of letters and numbers that actually mean something, do it! If you can shorten colors to “BLU”, “GRN”, “YLW”, there’s no reason to create a numbering system that’s associated with every color. By creating SKUs that mean something, you can make it easy for anyone in the company, and especially members of the operations team, to take a look at the SKU at a glance and know exactly what it refers to. On the other hand, if each color has a specific number associated with it, there’s no way to sort through the data intuitively. Moreover, to create any kind of summary reports that mean something to someone who’s not fluent in the SKU system, you’ll need a complicated series of tables and excel formulas to translate the meaningless numbers and letters into something digestible. 

(4) Make it your own

Finally, your suppliers will most certainly have their own SKU numbering system. The last thing you want to do is leverage their system and use it as your own. First, their SKU system is designed to do all of the above things we listed in items 1 - 3 but from the perspective of the supplier. Thus, what means something to them doesn’t necessarily mean something to you. Moreover, at some point, like you, they may find the need to redo their SKU system. If that happens, then the SKU system you’ve been relying on not only doesn’t exist, but it’s made your internal system completely meaningless. While it may seem like more work, having your own system is very worthwhile.

In general, we see this happen a lot with young companies - renaming SKUs is part of the journey and the growing pains. Regardless of where and how big your business is, we’re here to help you focus on your business, not your inventory.

Should brands shift to pop-ups and showrooms over traditional stores?

Pop-up shops can be just as effective as permanent stores.

In a previous post, we highlighted five reasons why e-commerce brands still need a physical presence, but we don’t think that that physical presence needs to be traditional store. Two new models, the showroom and the pop-up have emerged, and we think they can be just as effective if not more so than a traditional physical store.

According to Pop-Up Republic, pop-ups have driven $10 bn of sales annually and are continuing to grow. Even big brands like Nordstroms have created in-store pop-ups embracing the trend. Why are pop-ups so popular? And how can they be effective for growing brands over having their own retail store? And where do showrooms fit in?

Pop-ups provide flexibility

As a temporary location, a pop-up can provide ample flexibility for experimentation. As a brand, you can lease different size spaces in different locations at different times of year to figure out what works for your brand and resonates with your customers. The inherent transience of a pop-up allows you to A/B test different concepts, something that e-commerce brands are already doing all the time on their websites. Think of a pop-up as an opportunity to A/B test key variables like size, location, layout and assortment of your physical stores. In addition to these benefits, pop-ups are also a temporary expense thereby minimizing the risk of making a bad, long-term financial decision.

Pop-ups create a sense of urgency

The great thing about a pop-up is that it’s something new and temporary. These two elements can combine to encourage customers to buy now and to buy more than they otherwise would. Because they know your store won’t be there forever, customers are encouraged to make their purchase right when they see something they like rather than waiting until the next time they come back. While a physical lease runs 5 - 10 years, most pop-ups won’t be in a single location for more than three months.

Pop-ups can support your e-commerce business

For many emerging brands, the goal of their physical presence (whether wholesale or other), is ultimately to drive traffic to their higher margin direct to consumer business. Not only do pop-ups help you maintain your margin, but they accomplish a similar objective. If the customer was curious about your store, they’ll search for you online and be more likely to buy something than had they not walked by your pop-up. In a lot of ways, you can think of pop-ups as more like event marketing rather than a distribution channel.

Social media creates great marketing reach

In a world of social media, pop-ups become even more attractive because there’s an easy and convenient way to share the fact that you’re opening a pop-up with consumers. What’s more, it creates an opportunity for a conversation with your customers over social media in which you invite your loyal followers to come visit you in person. In the pre-social media days, it would have been very difficult to actually attract customers to your temporary location.

Showrooms are a natural extension of the pop-up

Most showrooms tend to be permanent and have been used successfully by brands like Warby Parker. While traditional stores hold inventory, pop-up shops often do not. Instead, they give the customer an opportunity to experience the product, decide what he or she likes and then place the order. Instead of walking out with the item, the customer gets the exact product they picked out delivered to their home. 

In a world in which physical retail stores are closing left and right, brands are searching for a great way to connect with customers and own the customer experience without taking on the liability that a physical retail store often comes with. The great thing about both pop ups and showrooms is that they derisk the financial investment required in creating your own physical space. In the case of the pop-up, the fact that it’s a temporary space limits the financial risk. In the case of a showroom, the fact that there’s little to no inventory investment is a different way to minimize that same financial risk. 

Regardless of whether you choose to keep your business e-commerce only or open a pop-up, we’re here to help you focus on your business, not your inventory.

5 reasons you need a physical store and how to hack it if you can't afford one

Physical retail stores are still important in an e-commerce world

It seems like everywhere these days all you read about is doom and gloom for physical retail. Same store sales are declining, foot traffic is decreasing and brick and mortar is struggling as Amazon continues to take over the world. While we can’t deny the facts, we do think that there is a compelling case for new brands to create some sort of physical presence:

(1) It’s hard to be a big business without a physical presence

As evidenced by the recent troubles at JackThreads and Nasty Gal, e-commerce pure plays are very vulnerable. While each of these companies had their own unique problems, the attractiveness of the e-commerce model can only take a company so far. Compare JackThreads and Nasty Gal to Bonobos and Warby Parker. The latter two are both e-commerce darlings which have started focusing on creating physical showrooms. These showrooms don’t hold inventory, but they create a physical presence where customers can come in and experience the product. Warby Parker understood the importance of the physical experience from the beginning and created its home try-on program as a way to compensate for a lack of physical stores. JackThreads attempted to create a try-on program, but it was ultimately too little too late. Of course, there are some shining examples of success like Dollar Shave Club, but so far, these are the exception and not the rule.

(2) Most shopping is still done in person

We all know the stats. E-commerce is growing rapidly at a rate of 15-17% year over year. Yet, despite this incredible growth, e-commerce (excluding big ticket items like cars), still only represents 10% of retail sales. Of course, this is huge compared to just a few years ago and the growth rates speak for themselves. That being said, as a brand, you want to be where your customers are and at least 90% of their dollars are currently spent in store. It’s important to maintain your e-commerce business and prioritize it as the wave of the future, but completely ignoring the channel in which customers currently spend most of their dollars just isn’t smart business.

(3) As consumers shift spend from goods to experiences, a store can be a great way to create a compelling experience with your brand

If you think about some of the most successful retailers in the world, like Apple, the thing that makes them so successful is that the store is a unique experience that helps the customer connect with the brand. When you walk into Apple, you might not necessarily be looking to buy, but you certainly are looking to explore and discover new things.

Physical stores, by creating a branded experience, can have a similar impact for your business. They are a great place for customers to discover new products that they wouldn’t otherwise have seen or evaluate more expensive purchases, like jewelry. In many ways, the physical store can act like a marketing channel by putting your brand, products and the experience it stands for front and center with consumers.

(4) If you can’t afford your own stores or showrooms, take advantage of pop-ups

Several of our customers, including Aella, have been extremely successful with lower cost, temporary pop-up shops. The next one includes a partnership with several other brands and starts on March 1st. While pop-up shops are of course, temporary, they still create tremendous brand awareness in critical markets. The goal of these stores is ultimately to drive e-commerce traffic, so by being strategic about the location and timing, you can achieve that objective without committing to a full fledged store. 

Pop ups are great because in expensive markets like NYC, there are plenty of landlords who are receptive to the concept. Their rent is high, so finding a long-term tenant can be difficult. Thus, this leaves plenty of open space for your pop-up. 

(5) Being strategic about wholesale can have a similar impact as having your own showroom or pop up

Wholesale is a tough channel. Not only does it eat into margins, but it’s hard to control how your product is merchandised. That being said, picking a few strategic partners and specific locations that align with your brand can be tremendously helpful in reaching your ultimate objective: driving traffic back to your e-commerce site. 

However, the challenge really comes into play on the margin side. A lot of e-commerce companies have lower prices because they can - they can still have attractive margins by disintermediating the middle man. Many e-commerce companies pride themselves on replicating the Warby Parker model - finding inefficiencies in the supply chain which allow them to have lower prices than more established competitors. However, before setting your prices, brands need to keep in mind that price is an important indicator of quality to consumers. Further, if you want to maintain the flexibility to enter the wholesale channel, having slightly higher prices will create a bit of cushion for you on the margin side.

At Fuse, we're dedicated to supporting your business, whether it's an e-commerce pure play or a combination of e-commerce, retail and wholesale. We're here to help you focus on your business, not your inventory.

Stop fumbling around in the dark with these 7 inventory management concepts

Stop fumbling around in the dark - use 7 inventory management definitions to guide your planning.

In our last post, we defined inventory planning and described why it’s important for your business. Since we’ve covered the “what” and “why”, we thought we’d create a mini-guide that starts to cover the “how”. Here are some of the basic concepts and definitions that you can apply to your business to get you started:

1. Sell-Through Rate

Total sales divided by inventory stock at the beginning of the period. Sell-through is typically calculated on a monthly basis. So, if you sold 500 silk blouses in January but started with 1,000 silk blouses in inventory, your sell-through rate would be 50%. If you have a high sell-through rate (75%), you may have underbought and might need to re-stock. A low sell-through rate (5%), would indicate that you overbought and might want to markdown the product. Although it’s a very basic calculation, this metric can help you easily see how well certain styles are doing.

2. Weeks-of-Supply

In many ways, weeks of supply and sell-through rate are two sides of the same coin. Calculated as total inventory / weekly sales, weeks of supply can be calculated based on historical results or as a forward looking metric based on your forecast. Many planners consider the forward looking approach to be best practice because historical metrics can be misleading. For example, if you’re going into a particularly busy selling season, looking at the prior month’s data won’t necessarily help you make a better buying decision. In Fuse, the calculation is done for you seamlessly - we connect your forecast to your existing inventory levels and provide you with a timely and accurate reorder recommendation based on your weeks-of-supply.

3. Buffer Stock (Safety Stock) and Service Level

No matter how accurately you predict demand, there is always some risk that you may have underestimated the inventory you need. For this purpose, companies keep some extra stock on hand. Some companies set a service level target which is the probability that all customer orders will be fulfilled. Younger companies might want to set this level quite high (99%) so as not to damage their brand. However, the flaw with service level is that it relies on relatively predictable demand. That’s why at Fuse, we set a weeks of supply target. So, if your target is to have five weeks of supply on hand at all times, we’ll prompt you to order more when you begin to dip below that threshold. 

4. Lead Time

Perhaps the most basic concept on the list, lead time is simply the number of weeks or months between when an order is placed with a vendor and when the finished good can be delivered. Lead time is often not only based on how long it takes to produce the good, but also how long it takes to transport the good from the factory to your warehouse. 

5. Reorder Point and Reorder Level

Closely tied to safety stock and lead time, the reorder point is the level of inventory at which a reorder is triggered. Typically, this minimum point is calculated as the forecast sales during the lead time plus safety stock. Although the reorder point can suggest when to reorder, it is difficult to know how much to reorder (the reorder level) without a robust demand forecast. Fuse seamlessly links the pieces together by providing a reorder recommendation based on the buffer you set, your lead time and the demand forecast you’ve created using our advanced algorithms.

6. Minimum Order Quantities

Depending on the size of your business, you might at times find yourself constrained by minimum quantity in units per SKU, units per category or dollars that your supplier will allow you to order. Although you might do a lot of sophisticated analysis to figure out the exact optimal quantity you need to reorder, your vendors might completely throw that analysis out the window by insisting that you meet a minimum order quantity.

7. Open to Buy

An open to buy puts all of these elements together to help you re-order more easily. It is a budget that highlights how much capital is available to spend in a given period, and how much already has open POs against it. For example, a retailer might need $100,000 of product next month to reach its sales targets. $75,000 may already be allocated to open POs, so the planner’s job is to optimize the allocation of the remaining budget ($25,000 in this case). In some instances, the planner may not have the budget that he or she needs to be able to meet the sales target. At this point, it often becomes an exercise in maximizing margin. The planner will evaluate not only which of the SKUs are the best sellers, but also which can generate the most profit given the limited budget available.  

At Fuse, we’re implementing these concepts and best practices in our software to vastly simplify the analyses that planners have to do. We’re here to help you focus on your business, not your inventory.

7 supply chain questions you NEED to answer and the tools that can help

Seven supply chain questions critical to managing and planning inventory

Supply chain is a complex field, but we’ve taken a stab at simplifying it for you by breaking it down into a series of simple questions:

1. What assortment of inventory do I want?

There’s a vast array of products that you can offer your customers – a single product can come in one color or ten. Often times, this is a question of judgement based on what has sold well in the past, trends in the market, or consumer preferences.

Thankfully, tools are emerging to help companies gather data and make better decisions. Trendalytics is a company that helps centralize social media data, like what’s trending on Instagram, into actionable insights. Makersights helps businesses gain insights into what their customers are looking for. Companies can use this knowledge to make better decisions about their product mix.

Although you might be tempted to offer many products in every color of the rainbow, as a young company, it’s better to start with a few core products and colors and expand slowly.

2. How much inventory will I sell?

Once you’ve decided on your product mix, you need to make a demand forecast to determine what sales of each product will be. These analyses are quite granular, down to the color and size level.

Most companies start out using Excel, but they quickly outgrow it as their product assortment increases. Beyond Excel, there aren’t many sophisticated tools in a price range that young companies can afford.

We created Fuse to help answer this exact question as seamlessly as possible. We automate the majority of your forecast, and our sophisticated algorithms catch and smooth out outliers. You can always tweak our recommendations as needed.

3. How much inventory do I need to order?

Once your forecast is done, you need to translate the forecast into an order recommendation. For each SKU, you’ll want to examine three key inputs:

  • Your projected demand (based off of your forecast)
  • How much inventory you have on hand
  • How much inventory you expect to receive in the coming months

You want to make sure to order enough to make up for the gap between what you have on hand, what you expect to receive and how much you plan to sell. You’ll also need a bit of buffer in case your forecast isn’t 100% accurate.

Many companies do this work in Excel, but Fuse can automate the whole process of translating your forecast to an order recommendation that’s consistent with your buying cycle.

4. Where will I order my inventory?

Finally, you need to decide on the suppliers you’re going to use. Our post from a few weeks ago highlights key factors in making this decision.

Once you’ve placed your POs, you’ll need some sort of tracking system. Most companies use Google Sheets, but with the launch of our procurement module, Fuse now has a simple way for you to seamlessly track your purchase orders in our system.

5. Where is my inventory?

Now you know that your inventory is somewhere between your supplier and your warehouse, but the question is, where? Is it on the boat, is it at the dock, is it in the warehouse?This type of tracking is useful because there may be delays that neither you nor your vendor can anticipate, so having visibility can help you make adjustments and communicate with your customers.

6. How much inventory do I have?

Some companies choose to run and manage their own warehouse, in which case, you’ll need a warehouse management system like Fish Bowl to help your employees in the warehouse know what’s where and also mark goods as they come in. Once inventory is received, your warehouse manager can send you a weekly CSV so that you can close out open POs.

Other companies choose to outsource their warehouse completely to a 3PL provider like Quiet Logistics. Although this can seem like a more expensive option at first, having your own warehouse and hiring people to manage it is usually not cost efficient unless you reach massive scale.

7. How do I get my inventory to my customer?

This question can be broken down into two key parts. The order management piece and the shipping and logistics piece.

The order management side helps you manage multichannel selling (your e-commerce site, your retail store and your wholesale business). When you process an order from a customer on your website, you want to make sure that you have enough inventory to fulfill that order. You might have a lot of inventory on hand, but perhaps all of it is already allocated to your wholesale channel. Order management systems like Stitch Labs (for smaller companies) and Tradegecko (for larger companies) can help you stay organized. They can also notify you when you’re running low. As your company grows, you may want to expand into more robust ERP systems like NetSuite. These types of systems are typically what people think of when they refer to an “inventory management system.”

Finally, the shipping and logistics piece is a whole separate beast. Companies like Amazon have mastered what’s known as last mile fulfillment which allows them to deliver goods to the customer as quickly as possible. Smaller companies aren’t well resourced to do this, which is why a 3PL system can be extremely useful. Not only can they take care of your inbound goods, but they can also pack and ship goods to your customers.

Staying sane

Especially right after the hectic holiday season, supply chain can seem daunting. For growing companies, we’d recommend taking it one step at a time:

1. Find a 3PL provider you trust and rely on them to do the blocking and tackling.
2. Be thoughtful about multichannel selling. While wholesale orders provide a steady stream of revenue, they are much lower margin. Make sure you’re working with retailers who will enhance your brand and help your direct to consumer business gain traction.
3. Be thoughtful about your forecast and how much inventory you buy – making big mistakes early on in your supply chain will be the costly.

We created Fuse to help companies transition from managing their forecasting and ordering process in Excel and Google Sheets to using sophisticated software. We’re here to help you focus on your business, not your inventory.

Can luxury go digitally native?

Can digitally native luxury brands succeed? We think so, but e-commerce brands will need to work hard to exceed the traditional luxury experience.

A few months ago, we published a post on why we believe that digitally native brands can and will be successful. First, they are well positioned to completely own the customer experience. Second, it’s easier to find and target the brand’s ideal customer online. Finally, there are many storefronts (like Shopify and Big Commerce) to choose from that look great and don’t require a team of engineers.

How do consumers feel about luxury e-commerce?

But, can the same logic be applied to luxury items? According to Bain’s Spring 2016 Global Luxury outlook, growth of luxury goods has slowed to 1%. In the US, specifically, the luxury market is in decline due to limited domestic spending and no support from tourism. However, amidst this grim outlook, e-commerce is gaining ground on traditional channels and is expected to grow by 15% per year through 2020. 

We ran a survey to understand how consumers feel about purchasing luxury items online. An overwhelming majority (90%) of our respondents said that they would buy a luxury item online, which is great news for brands. But, many of them caveat that there are only certain kinds of luxury items that they feel comfortable purchasing. First, they prefer purchasing from brands they already know. Second, they prefer to have interacted with the brand first in store. Finally, if it’s an item with a very specific fit, they want to have tried it on in advance.

Customer experience is key to success in luxury

We asked two up and coming brands, Floravere and SENREVE, in two very different industries (wedding gowns and handbags, respectively) to share how they tackle these customer needs.

According to Emily Ambrose at Floravere, “There is nothing more luxurious than serving the customer on her terms.  We deliver wedding dresses directly to the customer, so she doesn't need to hunt down the one dress. Instead, she can try-on in the comfort of home with her loved ones and no pushy sales people. Going digitally native gives us the opportunity to offer unprecedented customer service in our space.” 

Julia Mehra at SENREVE shared a similar perspective: “Luxury purchasers are increasingly turning to online retailers to satisfy their wants and needs. Our SENREVE woman is very busy, so shopping online suits her lifestyle. We’re seeing shopping behavior on our site indicating that the online model fits well with the modern woman’s schedule. We serve these women by delivering a beautiful, timeless, elegant bag for the modern, successful, on-the-go woman.”

Interestingly, both brands defined luxury not simply based on the nature of the good, but also based on convenience of the experience. Recognizing that fit is important, Floravere creatively opted to ship samples in multiple sizes and supplements the experience with a personal stylist. 

And so is building your brand over time

We believe that digitally native brands can be successful in the luxury goods market, but to do so, they’ll need to recognize that the experience of luxury has changed. Retailers must deliver on a customized experience that sacrifices none of the quality and achieves all of the service. Like with anything that is new, it takes time. Time to change generations of retail experience. It takes good word of mouth. It takes a dedicated set of initial customers who are willing to try it out.  And, then, your brand, your product, your service has to speak for itself.

Whether you’re a luxury e-commerce brand or not, Fuse is here to help you focus on your business, not your inventory.

What can you expect this Black Friday and Cyber Monday?

What can retailers expect this Black Friday and Cyber Monday? While physical retail is expected to under perform again, it's going to be a record breaking year for e-commerce.

As we gear up for Thanksgiving, we think of turkey, pumpkin pie, time with family and of course, shopping. Black Friday is crucial because it kicks off the critical holiday shopping season during which almost one third of annual retail sales occur. 

Black Friday has under-performed expectations

Despite retailers' emphasis on Black Friday, consumer participation and spend have been declining for the past several years. According to the National Retail Federation’s annual survey, last year there were just over 100 million in-store shoppers on Thanksgiving weekend (compared to a forecast of 135 million). These figures represented a decline of over 20% relative to 2014. 2014, by the way, also significantly underperformed the forecast. 

But Cyber Monday will be record breaking

On the e-commerce side; however, the picture is much rosier. According to Adobe Digital Insight’s Holiday Prediction, Cyber Monday will be the largest online shopping day in history, well exceeding $3 bn. Mobile is expected to continue to represent an increasing share of Cyber Monday Visits (nearly 50% or 25% growth relative to 2015). However, this increase might be a double edged sword given that desktop conversion rates are nearly 3x that of mobile conversion rates. Two potential remedies to address this gap are mobile retargeting to reach the mobile cart abandoner and improved checkout flow to make it easier for mobile shoppers to purchase in the first place. 

Consumers choose e-commerce for convenience

The underlying drivers of increased e-commerce spend are factors related to convenience, with over 50% of consumers citing free shipping as a reason for preferring to shop online. We asked our advisor, Robert Escobar, an operations executive with experience at brands like Bare Escentuals, Stella & Dot, Ipsy and Gwynnie Bee for his thoughts on how e-commerce retailers could tackle shipping this holiday season and beyond:

“Given the volume surge between Cyber Monday and Christmas, all ecommerce retailers should be thinking about how to reduce customer delivery jitters. Its awesome to offer great product, but not great to miss the expected delivery date. First, think through your own ability to process orders out of your warehouse and hand-off to the shipping company. Understand how long it takes for your shipping company to deliver. Always allow for 1-2 extra shipping days beyond the quoted date, unless its an overnight or two day guarantee shipping service. Second, if you charge for shipping, make sure to have an accurate cost calculator to ensure the customer knows the exact cost before they checkout. Lastly, make sure your consumers can track their shipment by providing them with a direct link email.”

As hectic as the holiday season might get, Fuse is here to help you focus on your business, not your inventory. 

Are millennial men better e-commerce shoppers than women?

Our study shows that men are better e-commerce shoppers than women. Although they spend less, they also make fewer returns and visit sites with the intent of purchasing.

Over the past several years, we’ve seen a proliferation of successful men’s e-commerce brands in a wide variety of categories. In grooming, there’s Dollar Shave Club and Harry’s. In clothing, Bonobos and Trunkclub. More recently, we’ve seen athletic wear enter the mix with brands like Rhone gaining traction. 

Men's e-commerce is under-penetrated

Despite all of this growth, we still think that men’s e-commerce is relatively under-penetrated compared to women’s e-commerce. Let’s take a look at athletic wear as an example. Our post from a few weeks ago on athleisure cited half a dozen new womenswear brands in the category. In menswear, we were hardpressed to think of more than a couple. Going into this post, our hypothesis was that not only are men underserved relative to women, but that on top of that, they’re actually better e-commerce consumers than women are.

To test this hypothesis, we ran a survey seeking responses from Millennial men and women on their e-commerce buying behavior. We got over 80 responses and the results were quite dramatic. 

Men are better e-commerce consumers than women

The story they tell us in favor of targeting men over women goes something like this. When men shop, they typically shop online more than women (80% vs. 64%). What’s more, when they do turn to online shopping, almost 90% of them are looking for something specific. Women, on the other hand, are are just browsing almost 50% of the time. Further, when men do buy something, almost 25% of them say that they don’t make any returns compared to none of the women we surveyed. 

This last data point is really stunning, particularly given how big of a problem returns are for retailers. We’ve seen this play out within our own customer base - menswear brands have returns of 10-15% and don’t flag them as a big concern. For womenswear brands, returns are a huge concern and can be over 2x more frequent. Why are returns such a problem? This is a whole separate topic altogether, but the short answer is because most brands aren’t set up to process returns efficiently and it can take as long as three weeks to get an item back into circulation.

However, our survey also shows that there are some drawbacks to targeting men over women. Although men are more likely to make a purchase and less likely to return it, they also tend to shop less and according to our results, they also spend less than women (50% say they spend less than $100 when they shop compared to 35% of women). The data shows that most of the high value consumers (over $250 / order) are women.

Men's e-commerce needs to precisely target customers

We asked one of our pilot customers, Chip Malt at Rhone for his perspective on the results: 

"We've seen great traction as a men's only direct-to-consumer e-commerce brand.  Our main challenge is finding the target customer looking for our product. However, once we find him, he is a great customer and shops with us often.  We also see very low return rates (75% below the industry average) as well as high repeat purchase rates (about 2-3x industry average), all resulting in a high customer lifetime value.  We also find our male shoppers to be less adventurous than women, sticking mainly to core colors and styles, so seasonal and 'pop-colors' are mainly window dressing for us."

So what’s our conclusion? Well, we still think that menswear is underpenetrated from the direct to consumer brand side in relation to womenswear. That being said, as with everything in life, there are trade-offs. Brands that target men might have an easier time getting men to actually purchase and not return their orders, but the tradeoff is that men shop less frequently and spend less.

Generation athleisure – what’s next for retail’s fastest growing categories?

Athleisure is one of the fastest growing categories in inventory and e-commerce, but can this trend last?

As we survey the retail ecosystem, we, like the rest of women in America, are thrilled by the boom in athleisure. Vogue published an article earlier this year highlighting the many ways that one can wear and style athletic wear, even giving us permission to wear athletic clothes all day. If Anna Wintour says it’s OK, who are we to argue?

What caused the athleisure boom?

Out of a combination of curiosity, a passion for retail and of course, self-interest, we asked ourselves, “Is athleisure here to stay?” But before we look to the future, let’s first attempt to diagnose where the trend started. We credit Lululemon (which was started almost 20 years ago) with driving the trend forward by showing us not only how comfortable we can be, but also how good we can look in their yoga pants. The Juicy Couture tracksuit took the trend to a new level over a decade ago by demonstrating how athletic wear can not only be comfortable, but that it can also be a symbol of style and status. As the clothing got more stylish - think cool wrap sweaters and criss-crossed tops - it became even more acceptable to wear athletic wear outside of the yoga studio and a proliferation of brands (like Alo Yoga, Rhone and others) flourished. 

Athleisure will evolve as a category

But can this really last forever? Our answer is yes and no. On the one hand, we don’t think that Athleisure in the way it’s known today - primarily intended as athletic wear but loosely interpreted as work and casual wear - will continue. Instead, as fabric technology improves, we think that athletic wear will slowly make its way back into the gym while new brands rise to take its place. 

We’re talking about brands that take the best of athleisure - comfort, ease of care, durability, functionality - and translate it into more stylish ensembles that are actually intended to be worn to work. Two great examples are Pivotte and Aella. Aella’s clothes are stylishly tailored, machine washable and the fabric makes the clothes feel like something you could wear to the gym with an important difference - it looks like something you should distinctly be wearing to the office. 

Comfort isn't just for the gym anymore

We sat down with Eunice Cho, the CEO of Aella, to ask her what inspired her to start the brand. When she first started working on Aella, “...there weren’t brands like ADAY, or other athleisure concepts that bridged the gap between activewear and ready-to-wear. Fashionable activewear started pushing the envelope, but everything still very much had a gym aesthetic. However, brands were popping up in menswear that were focused on comfort and versatility. Finally, the activewear sector was just growing and growing. I knew it was just a matter of time that this trend would bleed into other categories. We see Aella as the workhorse of the modern woman’s wardrobe: it’s the trusty essential that you can go back to, again and again.”

We’ve also seen this desire for comfort seep into other areas of women’s fashion, namely, lingerie. Several up and coming brands like AdoreMe and True & Co strive to disrupt Victoria’s Secret by providing a comfortable alternative that allows women to look and feel great. 

All in all, we think there is a lot to look forward to. While we might miss wearing our Lululemon pants everywhere, we’re excited to have a more stylish and equally functional alternative. Most importantly, we’re here to support all types of businesses, whether you’re an athleisure brand or not. At Fuse, we want to help you focus on your business, not your inventory. 

Inventory - tackling your biggest investment

Companies with the best supply chain management practices thing about inventory as an investment, not a cost.

After conducting almost 200 customer interviews, we’ve gained some insight into what separates the great from the good when it comes to inventory.

We started by asking our advisor, Oseyi Ikuenobe, the Senior Product Manager of @WalmartLabs’ Smart Forecasting product for his thoughts. At @WalmartLabs, Oseyi and a team of data scientists and engineers plans the inventory for Walmart’s $13 bn e-commerce business. 

Inventory management should have ROI benchmarks

According to Oseyi, "The best inventory strategy is one that allows you to buy the 'right amounts of the right inventory' to maximize revenue, profitability and growth. Instead of trying to simply control costs, it is better to think of inventory decisions the way we think of marketing spend - in terms of ROI. Once you have that mindset, you quickly realize that the ultimate smart inventory solution is one that can synthesize the collective wisdom of the organization and deploy it to drive decision making."

We’ve gleaned two insights from Oseyi’s thoughts:

  1. Best-in-class retailers think about inventory as an investment, not a cost center
  2. Collaboration between key functional areas is key to successful inventory planning

Reframing inventory as an investment

We work mostly with start-ups and all too often we see them allocating a fixed budget to inventory. But, inventory is an investment, much like marketing. The investment that a company makes in its inventory supports the company’s sales target. We’d propose that companies go through a series of questions to set their inventory budget:

  1. What is our marketing budget?
  2. Based on our marketing spend and our organic reach, what is our revenue target?
  3. How much product do we need to sell to support our revenue target?

This third question is the start of the planning process. Once the revenue target is established, a planner can go through and make a determination regarding the product mix and volume of product needed. 

Collaboration improves inventory planning

The process described above only works if there is tight collaboration between all of the functional areas that impact sales like finance, marketing, merchandising and operations. 

Unfortunately, we have seen a lot of avoidable crises caused because one functional area forgot to tell operations about planned changes. Things like changing the discount amount on a promo or A/B tests planned on the site. While these lapses might seem small, they can have a big impact if there isn’t enough product in stock to support these initiatives.

So What?

We want to encourage our customers to reframe the way you think about inventory: it’s not your biggest cost center, it’s your biggest investment. At Fuse, we’re designing a tool to help automate the grunt work of planning so that you can focus on important, strategic decisions. 

We’re here to help you focus on your business, not your inventory.

Why we believe in the success of online first brands

We believe that digitally native online first brands will be the future of all commerce, not just e-commerce.

At Fuse, we are excited about the wave of online first brands that we’ve seen succeed over the past decade. In a recent post by Andy Dunn, he called these brands “digitally native vertical brands” and later, “v-commerce”.

Will digitally native e-commerce brands succeed?

We asked Matt Heiman, a consumer investor at Greylock to share his perspective: “My view is that vertically focused direct to consumer online brands are better positioned than pure 3rd party e-commerce concepts over the next few years. Particularly as Amazon approaches 40% of US e-commerce, competing with them is extremely difficult, so the idea of creating a new brand and owning your own customer experience is a better position. Some examples of brands I think have done this well are Casper, Dollar Shave Club and Warby Parker.”

We agree with Matt, and we think that the sale of Dollar Shave Club to Unilever earlier this year for $1 bn has convinced others that it’s possible to build a valuable brand that caters to a different kind of consumer online. Dollar Shave Club’s true value is in the company’s fantastic brand and it’s ability to appeal to and engage with Millennial consumers in an authentic way over social media and other digital marketing channels (1).

E-commerce platforms make it easy to build a brand

We’re seeing this trend first hand at Fuse. Our target customers are fast growing companies with at least 25 employees and anywhere from $10 - $100 million of revenue who are excelling at building their own online first brands. One company, Ipsy, knows all about brand building. Ipsy was started by Michelle Phan, who built her own personal brand as a make-up guru on YouTube. As the company has evolved, the brand which originally appealed to Michelle’s followers and the make-up obsessed, has started to reach more casual consumers looking to expand their horizons.

The good news for many of our customers is that it’s much easier to build a strong brand online today than it was five years ago. Due to the proliferation of front-end e-commerce platforms like Shopify, BigCommerce and Squarespace, it’s much easier to build a great brand with minimal upfront investment. With the emergence of Shopify Plus as an enterprise e-commerce platform for companies looking to scale, we expect this trend to continue.

Inventory management systems haven't kept up (until now)

Although this is good news for many aspiring brand builders, the unfortunate reality is that back-end tools and platforms haven’t necessarily kept up with the front-end. Shopify has done a great job building an ecosystem around its API, but there are still a lot of gaps on the back-end. That’s where we at Fuse come in. Our goal is to help simplify the inventory planning process to help companies answer the key question related to their biggest investment: “How much should I order?” We’re really excited about the growth of online first brands in the market, and are just as excited to be able to help those brands focus on their business, not their inventory.

Struggling to forecast your inventory in Excel? Don't worry, you're not alone.

What are the current systems that customers are using to manage their inventory? The vast majority are using Excel, Google Sheets or have built a custom system.

At Fuse, we have the privilege of helping our customers enjoy their work more by providing an easy to use, beautifully designed inventory planning tool. As we’ve gotten to know our customers, we’ve been deeply impressed by how thoughtful, sharp and hard-working you are. 

We’ve compiled data from over 150 customer interviews to send you one message: you’re not alone. In every single interview, our customers inevitably ask, “Are we the only ones using Excel and Google sheets?” 

The answer is no, you are absolutely not. You’re not alone. That’s exactly why we at Fuse decided to tackle the challenge of inventory planning and management head-on.

90% of customers manage inventory in Excel

Almost 90% of our customers manage their inventory in a combination of Excel and Google Sheets, while just under 10% have moved on to build a custom system -- a costly and lengthy process. Typically, companies start thinking about a custom system at the 100 SKU mark when they’ve pushed their existing Excel models to a breaking point. Excel is crashing on a daily basis and procurement is nearly impossible to track in Google Sheets. 

We asked Karan, Director of Ops at Boxed, a company bringing bulk wholesale shopping to mobile, why they built a custom system: “At Boxed, we needed backend inventory forecasting systems that were customized for our business model and flexible. We searched for a solution on the market and didn’t find anything that met our needs. This is why we chose to design something in-house.”

Custom inventory management systems have drawbacks

Of the companies we spoke to that have built a custom system, the top three reasons for building something in-house were not being able to find a system that meets their needs, not being able to afford existing systems and not wanting to spend a long time implementing an external solution.

Unfortunately, custom systems come with their own challenges. Most require at least one full-time engineer to maintain them, taking away valuable engineering talent from important product initiatives that could grow the business. This is exactly why most companies don’t devote a full-time engineer to maintaining their system. Inevitably, it fails to keep up with the growing organization’s needs and ultimately needs to be overhauled. 

Building a custom system is expensive. The companies we’ve spoken to have spent anywhere from $200,000 to over $1,000,000 just to build it, excluding the cost of ongoing maintenance. 

Fuse's mission is to change the frustrating status quo. Our favorite part of our job is talking to customers and improving your quality of life. Working at a fast-growing company is exciting and fun. We want to help you spend more time focusing on your business, not your inventory.