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The Merchant Life Newsletter

The System Always Kicks Back

By June 19, 2024No Comments

Here’s your science lesson of the day:

In Chemistry there is such a thing as an “Equilibrium Law.” It is more commonly referred to as Le Chatelier’s principle, named after the French chemist Henry Louie Le Chatelier.

The formal definition of the principle is: If a system is at equilibrium and an outside stress is placed on the system, then the system responds in such a way to counteract the effect of that stress.

In layman’s terms: If you disturb a system, the system always kicks back.

Turns out that in retail, processes and systems also kick back.

Consider this scenario: Brands have an assortment comprised of seasonless or core/basic items and new fashion items. The seasonless stuff is evergreen in the assortment, while the fashion stuff catches the eye of the customer. So, if fashion is what draws attention, then brands go all in on fashion. But, this leads to overdevelopment and over-assorting products. This in turn leads to excess inventory, markdowns and losing out on margin.

Eventually, the system kicks back. SKU’s are cut, open-to-buy budgets are reduced, and inventories are right-sized. However, the assortments are scaled back to the point where they start to be perceived as bland and boring.

The system kicks back again. Time to ramp up the fashion part of the assortment to gain relevance.

You can see the conundrum here.

When the assortment is bland and doesn’t sell, brands create more stuff. When stuff doesn’t sell, they cut it back down. The system always kicks back. And, it does so in a predictable way: when a new leader or creative director arrives.

The trouble here is that retailers oscillate between two options. This doesn’t work because the customer is dynamic. Retailers and brands need to have systems that can be just as dynamic.

Coach, for example, demonstrates this with their success of the Tabby Bag. The bag was inspired by a style from the 1970’s and developed using Gen Z customer validation and testing. Only when the initial release of the bag was proven to be a hit did design get the green light to develop new versions. These versions have different sizes, materials and price points. As they were developed, they were tested with customers to ensure Coach was hitting the mark.

Go figure, Coach is rated the top handbag brand amongst female teens in the US.

The moral of the story here is to be dynamic with product development processes. Making too much fashion or aggressively cutting SKUs means missing the mark with the customer.

Because, not only do systems kick back, so does the market.