The High Cost of Retailers Putting the Wrong Foot Forward

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The footwear industry is often seen as a booming market, poised to increase by over $100 billion by 2027. This optimistic outlook is driven by factors such as growing global markets, technology advancements, the expansion of e-commerce, and the rising popularity of wellness trends that fuel sneaker and performance footwear sales. Yet, beneath this veneer of success lies a significant challenge: the footwear industry has some of the highest product failure rates, leading to substantial waste and inefficiency.

The Cost of Traditional Product Lifecycle Management (PLM)

Footwear brands face a daunting statistic: over 60% of new products fail with consumers (Gartner, Harvard Business, and MIT). What’s even worse – the failure rate for footwear alone is the highest of all categories at 79%. Such high failure rates can be attributed to several factors unique to footwear:

  1. Costly Product Development
    Footwear is one of the most expensive categories for product development. Creating shoe lasts, which are the molds used to shape shoes, is costly. The extensive range of SKUs and size variations further increase investment costs.

  2. Assortment Optimization and Long Tail Items
    Not only does it take a larger initial investment (relative to other categories) to start buying shoes, it takes a lot of patience. Shoes typically do not sell at the same velocity as other faster-moving categories and aren’t typically on replenishment.

  3. Competition
    The footwear market is highly competitive and over-saturated, with numerous brands vying for consumer attention. Standing out in a crowded market requires constant innovation, effective marketing, and a clear brand identity.

  4. Inflation and Consumer Behavior Shifts
    Inflation has also impacted footwear sales. A report by
    AlixPartners indicates that while consumers are buying shoes more frequently, they are more price-sensitive. Forty-two percent of respondents reported being more likely to search for coupons or wait for sales than they were a year ago.

Footwear Retail Industry Burdened by High Product Failure Rates

The high failure rates in footwear are not just a financial burden; they also contribute significantly to environmental waste. The industry is notorious for its high waste rates, with millions of pairs of unsold or returned shoes ending up in landfills. This waste is exacerbated by the industry's lengthy product development cycles and the high costs associated with traditional manufacturing processes.

Product Failure Rates by Category - Footwear Blog-1

Sustainability Regulations Pressuring Footwear Leaders

Sustainability is becoming an increasingly critical issue in the footwear industry, driven by both consumer demand and impending regulations. The European Union's Ecodesign for Sustainable Products Regulation (ESPR) sets minimum design standards for all products sold within the EU, aiming to reduce environmental impact throughout the product lifecycle. This regulation will impact the entire fashion value chain, from product design to marketing, and requires a proactive approach to integrating eco-design principles into corporate strategies.

Retailers are grappling with the question: “How do we become more sustainable?” While the desire to adopt sustainable practices is widespread, many brands are struggling with the practicalities of implementation and are unsure where to begin. A promising solution is 3D designs and CADs to expedite the development process. By leveraging these digital tools, brands can create virtual samples, significantly reducing the need for physical prototypes. This shift not only accelerates the speed to market but also results in substantial cost savings. Eliminating just one or two sample iterations can save some brands millions.

Physical samples, often discarded after a brief review, contribute to significant waste. Transitioning to virtual sampling allows most of the design and review process to be conducted digitally, thereby reducing environmental impact. While physical samples remain necessary for final fit and material testing, reducing the number of physical iterations can dramatically cut both costs and waste.

Will These Regulations Reach the US?

While the ESPR is specific to the EU, its principles are likely to influence global markets, including the United States. California has already taken significant steps in this direction with Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261), which mandate comprehensive sustainability reporting from companies. Given California's history of setting precedents in environmental regulations, it is plausible that similar regulations will be adopted by other states, eventually impacting the entire US market.

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Preparing for the Future

Brands are increasingly viewing sustainability through a regulatory lens as global regulations begin to take shape. For US-based brands, the future of these regulations remains uncertain, creating a challenge in how to prepare. While the desire to comply is strong, the immediate focus must be on data insights.

Collecting comprehensive data across the supply chain is vital. This includes information on energy and water impacts, among other environmental factors. Gathering as much relevant data as possible and storing it in a centralized system, like a Product Lifecycle Management (PLM) system is essential. This system can consolidate the data into digestible pieces, enabling informed decision-making.

However, data without context is merely just noise. It’s often recommended to understand why you are collecting each piece of data and how you will use it. Typically, if there’s no clear purpose for the data, it might not be necessary to collect it. But with new sustainability regulations emerging, we're at the start of a learning curve. We may not fully understand which regulations will evolve and what specific data will be required for reporting. Consequently, erring on the side of wide-ranging data collection is a wise plan for the future.

Footwear brands must prepare for these changes by investing in sustainable practices and predictive analytics. Companies that embrace these tools will be better positioned to align product development with market demand and sustainability goals.

The Role of Predictive Analytics

To mitigate these risks, footwear manufacturers need a firm understanding of which styles will resonate with consumers before production begins. One solution lies in data-driven decision-making, powered by predictive analytics. By introducing Voice of the Customer (VoC) data throughout the product development lifecycle, companies can make informed decisions on design, optimize assortments, and inform pricing decisions before the products reach the market. This approach not only enhances product success rates but also significantly reduces waste.

Case Study: A Retailer's Success with VoC Data

An illustrative example of the power of VoC data comes from a First Insight case study involving a fast fashion retailer. The retailer was considering adding a kitten heel bootie to their collection, inspired by its popularity in the market. However, before proceeding with production, they decided to test this style with First Insight's InsightSUITE.

However, the results were disappointing: the kitten heel bootie did not resonate with their shoppers. Armed with this new information, the retailer pivoted the style and avoided a costly mistake. Instead of producing a bootie with a heel no one wanted, they opted for a boot with a more comfortable block heel. This new style turned out to be a terrific success, and the retailer saved $10 million by avoiding the kitten heel production.

Additionally, the merchant team gained valuable insights into their cost-conscious consumer base, learning that their shoppers preferred versatile styles that could be dressed up or down depending on the occasion. Without this qualitative, data-driven feedback, the retailer would have been doomed to continue their best guess at which styles their shoppers preferred.

The footwear industry faces significant rates, and challenges due to high product failure rates and increasing sustainability pressures. However, by leveraging predictive analytics and embracing sustainable practices, brands can reduce waste, improve product success, and prepare for impending regulations. The cost of putting the wrong foot forward is high, but with strategic changes, the industry can step confidently into a more sustainable and successful future.

Interested in increasing your product success rate? Accelerate your new offering success rate by up to 80% with First Insight’s InsightSUITE. Chat with one of our Insight experts today to see how First Insight can help you make more data-driven decisions for your business.

Retail Analytics  cost-cutting  predictive analytics  retail  Retail Planning  Assortment  Product Lifecycle Management  Assortment Planning  New Product Success Rates  Data  Footwear  Reduce Sample Costs  Product Assortment  VoC  sustainability  product planning  price optimization  Improve Product Success Rates  Voice of Customer Analytics  Retail Digital Transformation  product design  retail sustainability