Breaking the Overproduction Cycle: Causes, Effects, and Solutions

Overview

Overproduction is a common obstacle in retail. The harmony between supply and demand is never perfect. On one side, running out of stock comes with its own set of problems. The idea of watching customers leave for competing companies produces enough anxiety for brands to err on the safe side and accept a certain amount of potential waste. But when does overproduction start to cause excessive harm to both your bottom line and the environment? And how do you strike the right balance?

Each year, the retail industry discards enough textile waste to fill 500,000 Boeing 787 Dreamliners. While the right production balance for each company varies, most retailers can agree that vast improvements are needed. The overproduction issue can be tackled in multiple ways—better understanding of customer preferences, data-informed product creation and merchandising strategies, streamlining of processes, and the ability to respond quickly to fluctuations.

Problems with Overproduction

Overproduction threatens the success of businesses, the health of the environment, and even the strength of global economies. Four of the most pressing concerns for the retail industry are outlined below.

Unrealized Profit Margins

Of the 100 billion clothing items produced annually, only 60 to 70% are actually sold to consumers, and only 30 to 40% of items sold fetch the full retail price. Most retailers that suffer from overproduction issues need to provide substantial markdowns to get their inventory out the door. Many more items end up as deadstock that fails to sell—even to discount stores like TJ Maxx, Ross, and Marshalls.

Overproduction significantly reduces a company’s ability to achieve its revenue and profit margin goals. As the apparel industry grows at a rapid rate that hasn't been seen in over two decades, we can expect this problem to worsen. Retail grew by 7% in 2020 and 14% in 2021 and is expected to sustain a 6 to 8% growth rate in 2022. Waste caused by overproduction is a glaring cause of this misalignment.

Wasted Resources

A garbage truckload of clothes is burnt or dumped in a landfill every second. The production of each item involves equipment, technology, water, energy, fossil fuels, and materials that are not reusable. For example, just to grow enough cotton for one pair of blue jeans requires 1,800 gallons of water!

When one-third of all production goes to waste, the retail industry is facing a severe problem that requires a radical and immediate change. Resolving this waste issue should be a top priority for an industry that continually struggles to chase profit margins and compete for revenue.

Increased Pollution & Environmental Degradation

At this point, we know that the fashion industry leaves a sizable environmental footprint, ranking among the largest polluters globally. Textile production emits a range of pollutants and contributes to the release of toxic chemicals at every stage—from growing as a source material (e.g., cotton plant) to manufacturing, transportation, and disposal. Burning the clothing doubles down on greenhouse gas emissions.

Negative Publicity

When a company becomes the focal point for an exposé on the fashion industry, the negative publicity can have a significant effect. When it was revealed that Burberry destroyed $36.8 million of its merchandise, shoppers threatened to boycott, and the British government deliberated on how to take action against those types of practices.

4 Primary Causes of Overproduction & Real-World Solutions

Inaccurate Forecasting

Inaccurate forecasting often leads retailers to order too much inventory, resulting in overproduction and waste. Retail technology helps brands leverage historical data and forward-looking consumer demand data to make more accurate predictions of their supply needs.

Seasonal Changes & Fast Fashion

With the emergence of fast fashion, retailers have pushed to meet shoppers’ demands to produce new styles rapidly. Brands that embrace a slow fashion mentality can attract buyers who share their values.

Failing to Meet Consumer Needs & Desires

Creating a consumer-obsessed approach to product development and merchandising will result in products that resonate with your target audience and drive robust sales. Build a brand that values open communication with your customers.

Ineffective Assortment Management

When consumer desires and behavior are not fully understood, it can lead to ineffective assortment management. By better understanding the issues, you can take a fresh look at your product catalog to identify items that add the most value.

Conclusion

Overproduction plagues the retail industry and leads to devastating effects on our environment and the global economy. Taking an informed approach to production, starting with a better understanding of your customers’ needs, will significantly impact your bottom line and help mitigate the ramifications of retail overproduction.