Taking the right measure
How the size curve in fashion is related to your product margin
When people are looking for the latest trend in fashion, one specific item can catch the eye easily: "I like this one, I would like to try this on". Now the moment of truth arises; "Will this nice shirt also be available in my size?" Unfortunately for both shopper and retailer it happens quite often that the desired item is not available at the point of purchase. Why has this become so common in fashion?
The fashion industry is a rather complex business environment with a wide range of products and an extreme short product life cycle. A fashion store with less than 5.000 unique product codes is nowadays hard to find, while the collection can change up to 12 times per year. Apparel products have become just as perishable as groceries. All decisions regarding the numbers have to be taken one year before the product actually hits the shop floor. The quantities of the initial buy are based on demand forecasts along with buyer intuition, well framed within the financial budget. This is especially true for fast fashionable items. For basic collections (never out of stock) other rules may apply.
Initial store lode in
When the new collection arrives in the warehouse it is distributed to the stores. The initial buying decision was crucial, because buying more during the season is rarely an option. After the first load in, a certain percentage of the quantity bought is left behind in the warehouse for in season replenishment. Depending on the allocation strategy this percentage varies from 0% to 40%. The allocation decision is also very important because the challenge is not to ship too much, but definitely not too little. The goal is to secure the sell out while minimizing the costs. High transportation and handling costs have to be prevented; minimal inter store transfer adds up to a good product margin. The quantities of the store load in are determined by the size curve (range of different sizes) and number of items per size (depth). A size curve is designed to ensure the right quantity in the store from a visual merchandise point of view.
Figure 1: Example size curve initial store load in: 15 pieces
Size curve for visual merchandise
From a store perspective putting the right quantity on display is very important to entice clients. In order to present the collection, the store layout is connected with the size curve to determine the quantities to put on the shop floor. The number of pieces per size will be used as the replenishment target to ensure the proper display throughout the product life cycle. One sold, one replenished. At first sight this process seems to be efficient but is this really the case?
Size curve to trigger replenishment
In retail the difference between profit and loss is in the little details; a few pieces of apparel shipped to the wrong location will already have a huge impact on the product margin. Especially during the season start when the items are sold at full price. One piece sold will trigger one replenishment order; everything is done to keep the size curve intact as long as possible in the product life cycle. Is this the right logic? E.g., if one size is sold only after two months, replenishment is not logic at all. Another store with a sell-out of two per week on the same size would be a better choice. In another scenario just a few sizes are not moving, while other sizes sell better than expected. The initial size curve does not reflect the actual sell out and sticking to the rule of keeping the size curve intact will have another negative effect on the product margin. The huge impact really shows at the end of season when the excess inventory has to be marked down while in another location sales are lost on the same items.
Figure 2: Example size curve after 3 weeks sell out: 15 pieces Preventing mark down is impossible, but to replenish the wrong size to keep the initial size curve intact will put unnecessary pressure on the product margin.
The size curve is the right tool to link with the store layout and to determine the first load into the stores. The initial size curve as instrument to replenish in season is devastating for the product margin. It is unbelievable that the vast majority of fashion brands still allows their system to automatically replenish the shop floor with the initial size curve as the inventory target. Visual merchandise decision making should be strictly segregated from in season replenishment targets. Does it make any difference for the visual display that the number of pieces per size differs from shop to shop, while the total number of pieces is the same? Only the shopper will notice: "Yes! My size is available, I'm going to try it on".
If the shoppers are enticed by the collection, then it's up to availability to cash the success. Higher availability on colour size level will increase the product margin and leverage the creativity. Understanding the role of the size curve is a big step into the right direction. A good collection will become even better when it is sold at the highest possible margin.