Why the close-out sale? Are brands overproducing?
An inside look at production, market forecasting, and weighing innovation against environmental impacts
You’ve seen it before, wandering the aisles of gear shops in late winter or early autumn: the seasonal close-out sale, where last year’s items sell for 40%, 50%, or sometimes 60% off. Great deals! Good gear! It doesn’t really matter that the colors are 4 months out of style, does it?
But where does this surge of discounted gear come from? Why is it sold off like this at the end of each season? Are brands overproducing? Is it intentional? Do they rely on these close-out sales? What happens to gear that doesn’t sell? Do they end up in landfills?
Lance Taylor, U.S. Commercial Manager, Salomon Footwear was nice enough to share the inside scoop on all of these questions and more. In a nutshell, he says good business models won’t intentionally overproduce too much. Bringing new styles and updates to retailer shelves each season (and therefore phasing out old styles) is a careful balance of resources and innovation, he says. Innovation is where the big positive environmental impacts are, he explains.
Every brand and type of gear will function a little differently, but Taylor answered a few key questions for us, diving into production cycles, the fate of left-over gear, and many more end-of-life logistical details. His answers have been condensed and edited for clarity.
How do you decide how much to produce of an item?
Before we start producing things, we build a “demand plan” for the whole country. We gather information from all the regions—different parts of the U.S. markets—and we look at our direct consumer base, our wholesale outdoor specialty stores, some of the other bigger key accounts. We fold all of that information together into our big demand plan.
That demand plan is submitted to our global headquarters (European and Asian markets do the same) Then the global headquarters has this big pool of demand, and they negotiate with factories to produce certain things along certain timelines.
We submit a demand plan every month. So we’re constantly revising the plan to make it tighter and tighter. The first one is not very accurate, since we don’t have many orders for a new product, and we’re working off anecdotal feedback from key accounts on how they think something is going to be received. Some of our forecast is also based on history, especially on stuff that is carried over season to season. For those cases, we know about how many we sell in a season so that’s kind of easy. But the new stuff, it’s a shot in the dark a little bit. As the cycles progress, we start to get information and intelligence and orders from the trade on what’s selling. Then we keep fine-tuning those forecasts for future cycles. And then we start all over for the next season.
And how long does the whole production cycle take?
The idea-to-consumer process typically takes a lot longer than you’d think—in many cases, we’re talking like 18 months to two years. It’s a pretty drawn out process.
An example: We’re coming up on gear being released in Fall/Winter 2020. To create the products for this season, we started in a business planning meeting, back in March 2019. We met again in June 2019 to follow up on the decisions made in that meeting, and then we planned our sales meetings. Public relation agencies were brought into the process in October 2019. All the way through February 2020, we’re showing the trade the product and starting to sell it. Once selling is done, your retail intro date would be in August 2020.
It’s this big cycle that takes forever to really come full circle. By the time something actually hits the retail floor, I look at it and I feel like it’s so old.
And, that’s for footwear. Apparel is pretty similar, though all gear is a little bit different, considering their life cycles and the time it takes to get to market. The production cycles, all those depend on the size of the business, the size of the categories.
How do you decide how long to keep something in production? Like, if something is really popular, at what point do you decide to keep producing it? If it’s not super popular, do you scale things back?
It depends on the brand. I think everyone has different strategies on how they do this. We have a pretty big commitment to innovation and so even with our key styles—the ones that are dialed in really well with consumers telling you, “Please don’t change the shoe!”—if you don’t change it, then you run the risk being stagnant and not having any freshness.
There are always new materials, and new ways of construction that you want to implement into your key styles. We typically don’t go more than three years with an existing style. Salomon’s Sense Ride shoes, for example, get updated every year. It only has a twelve-month life cycle and then it gets fine tuned. That’s pretty standard with running products; hiking boots are more like three years, but then even within that three year period, you’re going to have color refreshes or other things to keep them fresh.
And so how do you phase out last season’s gear? The old colorways and styles? What happens to them?
When we see something coming to its end of life or it’s about to transition out, we’ll make our purchasing plans a little bit tighter. Again, it depends again on the brand on this. There are a lot of retailers out there who will make proposals to brands, asking them to overproduce products. They say, “Hey, if you have a bunch of extra at the end of the season, and we’ll take it off your hands, we’ll take the risk away from you.” Then they’ll sell the products at discount retailers or whatever. It’s not a great business model, I don’t think. It can saturate the market a little bit, and it also doesn’t do a lot of service to your full-margin or your full-price retailers because you’re basically enabling them to be constantly undercut and condition consumers to devalue your products.
So we don’t do that. You’re always going to have close-out, though. We try to run the orders as tight as we can, but you’re going to have some things left over. You try to minimize it as much as you can, but the truth is if you have a hundred percent sell-through at full price, you’ve missed a lot of sales. A 75-80% sell-through is really solid and probably where you’d want to be, because that means you didn’t miss a lot of the demand. If you sell 15% of your supply off-price, that’s a more healthy balance.
To overproduce something intentionally is just not great business, in my opinion, in the long term. It’s good for six months and for hitting that fiscal year, but it’s not really good for brand building.
If a retailer determines that something’s not selling well, or they end up with a lot left over, do they ship products back to you, or how did they deal with it?
Everyone kind of has their own way. It’s the retailer’s responsibility to manage their own discounted or end-of-life program. Now, if it’s going to put them in a position where they’re going to have extreme margin difficulty, there are times when you would help them with a markdown credit or something like that. But for the most part, it’s up to them to liquidate the product. It’s up to the sales representatives and the buyer to find that happy medium of balance of supply versus demand.
Are studies about the environmental impacts of having products left over at the end of the season?
Not specifically because the end-of-season products still land in consumer closets. You never have a new product going to a landfill. There will always be some slight excess, and that excess eventually drops to wholesale price, or further. You’d start at a 25% discount, and if you can’t sell it at that, then you sell it at a 35% or 40% discount, and then you liquidate it.
Some of it will go to a retailer like Sierra Trading Post, notorious for selling more discounted products. They’re a good partner and they’re great people. They come in and clean things up at the end of the season.
So, in terms of environmental impact, I don’t really think there’s much. At least it’s not so much an environmental impact as much as it is a financial impact on the company because you’re selling it at a less margin.
Shoes will end up there one way or another in a landfill, hopefully after a lot of use. And the way you help that is through good materials—making materials that last for a long time, and reusable materials that you can recycle more. The more we can do collectively to reduce what’s going into landfills is going to have a bigger impact than simply not producing new styles.
What you’re saying is that creating new products each season brings opportunities for innovation, which can lead to the use of products that are more environmentally friendly. Does this outweigh potential environmental benefits of just keeping one style for years and years?
You could say that if you kept the same shoe in production for 10 years, that it would create less of an environmental impact because you’d likely stop selling them because everyone would be tired of the shoe, so they’d stop buying it. But, whether you’re producing a total of 10,000 pairs of shoes in two models, or 10,000 pairs in one model, you’re still producing 10,000 pairs, right? We’re trying to find that balance of being environmentally responsible, and to me, it really comes down to materials more than anything.
Updating something with better, renewable materials will reduce our carbon footprint for sure.
To be clear, I’ve given you examples based on footwear, so it’s going to vary a little bit for apparel or hard goods. In general, I’m always a fan of carrying things over personally, because it gives me really good intelligence for forecasting and it takes time for consumers to really get exposure to things. I’m finding that balance is leaning on the side of carrying things over, but you have to also stay fresh and bring innovation to the market, too.
Emma Athena is an award-winning journalist and fresh-air lover. She writes about adventure and the environment, where humans and nature intersect at their most impactful moments. When she’s not glued to her keyboard or curled up with a book, she’s running in the mountains with her dog or camping with people she loves. To read more of her work and get in contact, visit emmaathena.com.