The cyclicality of fashion and its impact on the financial results of the fashion business

Stylists and experts never tire of telling both professionals and ordinary consumers of goods and services in the fashion industry that fashion develops cyclically. The cyclicality of fashion has a significant impact on the financial results of the fashion business, since it dictates periods of demand and decline and determines which goods will be in demand at a certain moment. SR expert in assortment planning and management Emina Ponyatova talks about which aspects of the cyclicality of fashion should be taken into account by shoe retailers in their work, and how they affect the financial performance of the business.

Emina Ponyatova -

expert in the areas of “Assortment planning”, “Analytics and category management” with more than 15 years of experience in the fashion industry. Work experience: buyer and category manager - brands Replay, Pepe Jeans, Hugo Boss, Armani Collezioni, Stefanel, Missoni. Head of Analytical Department - TsentrObuv and Modis. Author and speaker at courses at Fashion Factory, SkillBox and Fashion Advisers schools, consultant and online coach, teacher at the Russian Economic University named after G.V. Plekhanov.

It is important to consider several aspects of fashion cycles and their impact on business finances. Let's look at each of them in detail.

Seasonality

Fashion is very closely linked to seasons, for example, a winter collection should be sold in the autumn-winter period, but when spring comes, the demand for such things drops sharply. A business that does not correspond to seasonal trends risks facing a drop in demand and surplus goods, which can lead to a decrease in margins and the need for forced sales.

In Russia, with its highly seasonal nature across much of the country, seasonality has a significant impact on profits in the footwear business, as demand for different types of footwear varies greatly depending on the time of year and region.

Key aspects of the impact of seasonality on profit:

1. The maximum demand for summer models (sandals, flip-flops, flip-flops, light open and closed shoes) is in the warm months (from May to August, with demand significantly decreasing in August), while the peak demand for winter footwear (boots and half-boots, boots, ankle boots, warm sneakers, dutik boots) occurs in autumn-early winter, then consistently high demand remains throughout the cold season with a slight decrease closer to spring.

2. Transitional periods (spring and autumn, the very off-season) also require special demi-season shoe models (demi-season boots, sneakers or half-boots), but the demand for such shoes is less compared to winter or summer ones, and this must be taken into account when purchasing and planning the assortment.

3. Seasonal mismatches inevitably lead to lower demand and forced sales. It is important to manage inventory to minimize the balance of out-of-season products. Having excess summer shoes in the winter can lead to having to sell them at greater discounts than you would like, which reduces profitability. At the end of each season, many companies are often forced to hold sales to free up warehouse space for the new collection. Although this helps to get rid of leftovers, such promotions reduce margins. At the same time, insufficient stock of seasonal shoes can also lead to lost sales and reduced revenue.

4. It is important to time the sales correctly so as not to undermine full-price sales at the beginning of the season. It is also important to invest in marketing campaigns to promote new collections during the start of a new season. If the promotion of seasonal footwear does not work (or the advertising is launched late), the company may face a drop in demand during key periods.

5. The shoe business in Russia may depend on the geographical features of Russian regions. In warm regions, winter footwear is less relevant, and in the northern regions, the period of demand for summer footwear is shorter. Effective supply management in different regions and understanding of climatic differences and features allow you to minimize losses and improve profitability. Seasonal sales peaks (for example, winter and summer) require large investments in production and purchasing of footwear before the start of the season, which increases the load on the "cash flow", a set of payments - receipts and payments.

6. Unforeseen weather changes, temperature fluctuations (for example, a prolonged winter or an abnormally hot summer, or, as this year, summer September) can greatly affect demand, which creates financial risks for business.

Thus, the seasonality of the footwear business forces retailers to balance between strategic inventory planning, timely marketing and strict control of product balances to minimize the impact of seasonal downturns on sales and optimize profits.

Trends and obsolescence of models

Fashion cycles in the footwear segment mean one thing: trendy models can quickly become outdated. If a company fails to sell a collection before the trend changes, it will have to lower prices or offer discounts, which reduces profitability. Fast fashion is especially sensitive to this aspect, as companies must keep up with collection updates to stay relevant all the time.

Companies that successfully anticipate and quickly respond to all fashion trends can significantly increase their income, while mistakes in choosing a collection can lead to serious losses.

Key aspects of the influence of trends on profit:

1. Shoes that follow current fashion trends may sell at higher prices due to increased demand. People are willing to pay more for shoes that stand out and meet their fashion expectations. Trends often drive sales in the short term, but it is important to respond to them promptly to maintain a steady stream of revenue. Once a trend passes, demand for shoes that match it drops sharply, forcing companies to hold sales. Selling outdated styles at a discount can reduce margins and impact overall profits.

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2. Rapidly changing trends are especially dangerous for brands with long production cycles, as they may end up with large inventories of products that are no longer relevant. If a company mispredicts trends, or releases a collection that does not meet consumer expectations, this can lead to significant financial losses. Unpopular shoe models often remain unsold and take up space in warehouses. Forecasting errors also increase the risk of costs for processing or changing collections, which further affects profits.

3. To stay on top of trends, companies spend significant funds on research, design development and marketing campaigns. These investments can only be justified if they successfully and accurately hit the fashion demand. Large brands can collaborate with famous designers or influencers, which increases the cost of their products, but also increases the likelihood of success and increased profits.

Fashion trends often drive more frequent purchases. Fashion-conscious consumers may buy multiple pairs of shoes during a single season to match different trends. This increases overall revenue by increasing the average order value and frequency of purchases. However, if consumer behavior is too trend-driven, it can make a company dependent on fast fashion, which carries the risk of reducing product quality and business sustainability.

4. The influence of trends can encourage a brand to create limited collections (capsules), which often attract attention and create excitement, information noise. These collections are sold at higher prices, which significantly increases profits. However, creating limited collections is associated with high costs and the risk that the trend will be too short-lived, which will lead to unsold stock.

5. Trends related to sustainability, eco-friendliness and comfort are gaining popularity in the footwear industry. Companies that implement such eco-trends into their strategy early can expect to gain long-term profits through customer loyalty and strengthening their image as a responsible brand.

Conclusion: Fashion trends in the shoe business can either significantly increase profits or have a negative impact and cause losses to increase if it is not possible to promptly adapt to rapidly changing consumer tastes. Successful brands use trends as an opportunity for growth, while minimizing risks through proper planning and flexibility.

Risk of excess inventory

Due to fashion cycles, fashion businesses may face the accumulation of unsold goods (stock balances). If the fashion cycle changes, the stock of unsold collections loses its value, which affects financial performance. Companies often have to sell outdated goods at large discounts, which negatively affects the profitability of the business.

The risk of excess footwear inventory for the retail business in the Russian Federation is a serious problem that can significantly affect the profitability and operational efficiency of companies. This risk is especially relevant due to a combination of factors related to seasonality, changes in fashion trends, economic instability and today's logistical constraints. In Russia, especially in the context of sanctions, the purchasing power of the population may decrease sharply, which is what we are already seeing. This will lead to the fact that the planned demand is not justified, and stores will be left with large volumes of inventory that will be difficult to sell at the original price. Inflation and rising raw material prices can also reduce the availability of footwear for end consumers, forcing companies to reconsider their inventory management and cost reduction strategies.

Russia today faces certain logistical challenges, including long supply chains and dependence on imports. If shoes are delivered with delays, they may arrive after peak demand, leading to excess inventory. Sanctions and changes in international trade may further complicate the situation by making supplies less predictable and increasing storage costs. Weaknesses in demand forecasting and inventory management can lead to overordering. Companies without modern accounting systems or sales analysis often misjudge the volumes of goods needed. Using outdated inventory management methods or lack of flexibility in adapting to market changes increases the risk of unsold shoes accumulating. Excess inventory requires storage, transportation, and management costs. As a result, companies are forced to sell goods at discounts, which reduces margins and reduces overall profit.

The risk of excess shoe stocks for businesses in Russia is directly related to demand management, changes in fashion trends and the economic situation. Companies that are able to flexibly respond to changes in consumer preferences and effectively manage their stocks can minimize this risk and maintain their profitability. Otherwise, excess stocks can become a significant financial burden and lead to a loss of competitiveness.

Impact on pricing

The cyclical nature of fashion forces businesses to manage product prices very carefully. At the start of the season, prices are higher, but as the end of the season approaches or a new collection is released, companies are forced to hold sales. The ability to balance between timely offering of products at high prices and sales affects margins.

Investing in Trend Research

Success in the fashion business depends largely on the ability to predict future trends. Companies spend significant resources studying consumer preferences and fashion forecasts from various trend bureaus, designers and stylists in order to accurately plan their production and logistics. Mistakes in forecasts can be costly, as the release of an unselling collection will lead to serious losses.

Audience segmentation

Some brands actively use the cyclicality of fashion to segment their audience, creating different collections aimed at different categories of customers - from those who seek the latest trends to those who prefer "timeless classics". Separating focus groups helps to soften the impact of rapid changes in trends on financial stability.

The return of trends

Fashion is cyclical not only during the season, but also in the long term. Trends from past decades sometimes return, and it cannot be said that this happens rarely. This allows fashion companies to use old designs and models, slightly adapting and modifying them to the current trend, which can reduce the costs of developing new collections. However, the success of these "retro" styles is not always predictable, which also carries certain risks.

Let's draw a general conclusion: understanding and managing the cyclicality of fashion is a key factor in achieving stable financial results. Effective inventory management strategies, proper arrangement of collections, marketing and demand forecasting help shoe businesses adapt to changes and maximize their profits.

Photo: FRAME Tozzi autumn-winter 2024/25