Consumer apparel preferences are always in flux. Add to that the seasonality of clothing purchases throughout much of the world and the occasional viral trend, and it’s easy to see why apparel manufacturers might struggle to meet customer demand while still turning a profit. If they stock too many items that ultimately do not sell, they’ve wasted precious budget on excess inventory and associated holding costs. Yet, if they fail to stock enough popular items, they risk lost sales, disappointed customers, and reputational damage. This is why robust inventory management processes, technology, and talent are necessities for clothing makers. Investments in these areas can yield significant returns in the form of more efficient stock rotation, lower costs, happier customers, and greater profitability.

What Is Inventory Management?

Inventory management is the process of tracking inventory from production to final sale and monitoring supply and demand trends to determine how much stock to order or produce and when to do so. The aim is to ensure that the company has enough of a particular item to fulfill orders without maintaining so much inventory that the organization ties up cash and racks up attendant inventory carrying costs.

What Is Clothing Inventory Management?

Clothing inventory management is the practice of tracking, managing, and maintaining the optimal amount of apparel necessary to meet customer demand while also minimizing costs. The process, which oversees raw materials works-in-process (WIP) and finished goods sounds deceptively simple. But in an industry that must stay on top of hundreds or thousands of product stock-keeping units (SKUs) with new items being continually added to meet changing tastes, it’s a tall order. Thus, inventory management is not merely a back-office process but a strategic lever for lowering costs and increasing profitability, competitive advantage, and business growth.

Key Takeaways

  • Clothing inventory management involves tracking, managing, and maintaining optimal levels of stock to fulfill demand while controlling costs.
  • Apparel makers face some unique inventory management challenges, including high numbers of SKUs, seasonal and cyclical demand shifts, and supply chain issues.
  • Understanding and applying specific inventory management systems and best practices offers significant benefits.
  • Effective inventory management can reduce costs, minimize overstocking and stockouts, increase customer satisfaction, and bolster profit margins.

Clothing Inventory Management Explained

As in other sectors, inventory management in the apparel industry involves forecasting demand, placing orders for raw materials, warehousing, and tracking and keeping accurate records of WIP and finished clothing items. It also entails optimizing inventory levels—factoring in sales data, trends, and seasonality—so as to maximize profitability.

However, those responsible for managing apparel inventory face several particular challenges. To begin, fashion is notoriously fickle. What flies off the shelves one season is passé the next, which can make demand forecasting tricky. The fast-fashion sector contends with even shorter product design and sales cycles, putting pressure on inventory management professionals and systems to keep pace with new product introductions and rapid reordering. Clothing inventory management also requires the tracking of hundreds or thousands of SKUs, due to the wide range of sizes, colors, and styles involved. Then there are the globally dispersed—and often disrupted—supply chain networks, which can undermine inventory management efficiency and effectiveness. It all adds up to an especially challenging environment for inventory managers trying to balance having enough inventory on hand to meet demand without having so much that it eats away at company profits.

Why Is Clothing and Apparel Inventory Management Important? 11 Benefits

Establishing a systematic process for ordering, storing, tracking, and controlling inventory is essential in the apparel industry. Maintaining accurate visibility into stock levels, correctly predicting demand, and managing clothing throughout the inventory lifecycle from acquisition or production to sale is the only way to ensure that the right items will be available at the right time. In addition to those benefits, effective inventory management can:

  1. Decrease errors: Inaccuracy in inventory tracking and recordkeeping can result in a host of problems, such as missed sales opportunities, issues with financial reporting, and poor decision-making. A good inventory management system empowers apparel companies to track their goods throughout the production and inventory lifecycle in real time.
  2. Prevent overstocks and stockouts: Managing apparel inventory well helps clothing manufacturers balance stock levels, decreasing the likelihood of two costly situations arising: overstocking at one end of the spectrum and stockouts at the other. Overstocking can result in the need to run deeply discounted sales to move inventory, impacting profit margins. To wit, the fashion industry produced between an estimated 2.5 billion and 5 billion items of excess stock in 2023, worth between $70 billion and $140 billion in sales, according to the Business of Fashion/McKinsey “State of Fashion 2025” report. Stockouts, on the other hand, cause companies to miss out on sales and revenue; they also frustrate customers. Effective inventory management helps companies find that just-right middle ground to reduce both of these risks.
  3. Reduce holding costs: Keeping more apparel in stock than is necessary to meet customer demand comes with a price: carrying costs that can become a financial strain. Unsold items take up valuable and often expensive warehouse space. Storage costs include warehouse leasing costs and associated utility and maintenance expenses. Companies must also pay insurance payments to cover theft, damage, or other inventory losses. Warehouse labor is another expense. And, if items sit too long in storage, they may become obsolete, damaged, or otherwise unsellable, not to mention that the value of these items depreciates as they go out of fashion.
  4. Improve cash flow: When a clothing company buys or produces apparel inventory, it is investing in goods that it hopes to sell. But until that happens, the inventory ties up capital that could be used for other potentially more valuable business uses, such as innovation or expansion. Once the goods are sold, however, the cash is then available to the business again. An apparel company with solid inventory management practices in place—including accurate demand forecasting to optimize inventory levels—is more likely to have healthy inventory turnover rates, which reflects how long it takes to sell its stock. That, in turn, equates to a positive cash flow.
  5. Enhance customer satisfaction: With a clear view of inventory, companies are able to process and fulfill orders quickly and accurately, and avoid out-of-stock situations that stymie a customer’s shopping experience. In an industry where styles change rapidly and staying ahead of the curve sets a brand apart, decreasing any point of friction is especially important. A good inventory management practice also pays off when it comes to facilitating customer returns and exchanges.
  6. Streamline operations and production: With more accurate inventory data and analytics at the ready, clothing companies are well positioned to order precisely what they need to support production and better track the flow of finished goods. This results in more efficient and cost-effective operational and production processes and less waste in the system.
  7. Reduce theft and losses: Inventory shrinkage—the difference between the amount of inventory a clothing company has on record and the actual amount on hand—can negatively impact a company’s financials. These discrepancies may result for any number of reasons, including data-entry or counting errors, theft, employee fraud, or inventory damage—and the costs can quickly accumulate. The more effectively an apparel company can track individual inventory items through each step of the supply chain, the less likely such losses are to go unnoticed; this can reduce the cost of shrinkage. In some cases, the company may even be able to identify the source of these losses to prevent them in the future.
  8. Enable accurate demand forecasting: Clothing businesses with robust digital inventory management processes have better control over their inventory than those that attempt to handle this manually. They also have access to accurate inventory data with which to make predictions and reach better decisions. By analyzing historical sales data and marketplace trends, apparel makers can predict fluctuations in demand, optimize inventory levels in step with dynamic market conditions, zero in on seasonal shifts, and identify slow-moving products or lines. From there, they can decide whether it makes sense to replenish inventory more frequently or to pursue clearance strategies for products that have fallen out of favor, for example. Apparel companies that are capable of forecasting customer demand more accurately will improve both their top and bottom lines.
  9. Simplify reordering processes: Knowing when to replenish stock can be one of the more challenging aspects of clothing inventory management, given how dynamic this marketplace can be. There are a variety of ways businesses can streamline the reordering process. Inventory management systems can be set up to deliver automated real-time alerts when stock levels dip below a certain threshold, aka reorder points. Some systems allow for automatic ordering. When integrated with point-of-sale or ecommerce systems, inventory management software can automatically update stock levels after each sale to further streamline the process and trigger reorders for fast-selling apparel. The more advanced inventory management systems feature integration with AI capabilities to more fully automate inventory replenishment.
  10. Support multichannel sales: Multichannel selling is an essential strategy for apparel businesses seeking to maximize their customer reach. Having an accurate view of stock levels across all locations and being able to factor in sales across platforms, including online stores, brick-and-mortar stores, and third-party marketplaces, can help prevent overselling and stockouts. The ability to synchronize real-time inventory data allows businesses to offer a consistent customer experience across channels, as well as to sidestep problems, such as customers ordering items online that are actually no longer available to ship due to sales made via other channels. Access to accurate inventory data also enables more efficient fulfillment by identifying warehouses that can offer faster, more cost-effective delivery. Inventory management data and analyses can also provide key insights into demand trends and customer buying preferences, so clothing companies can make informed decisions about product selection, pricing, and promotions for each channel.
  11. Boost overall profitability: Of course, the most important benefit of well-managed apparel inventory for any company is increased profitability. All the benefits of inventory management described above, from error reduction and better demand planning to theft reduction and increased customer satisfaction, can serve to increase profit margins for apparel companies.

Apparel and Inventory Management Challenges

Inventory management can pose significant challenges for apparel companies, any of which have the potential to endanger profitability, customer satisfaction, operational efficiency, and sustainability. Some of the particular hurdles include:

  • Overstock and stockouts: It can be particularly challenging to balance inventory levels in the apparel sector, for reasons including quickly changing trends and difficulty predicting demand. As a result, companies in this industry can find themselves in overstock situations, which ties up cash and manifests in higher inventory holding costs, or stockouts, which translate to lost sales and revenue, disappointed customers, and potential brand damage.
  • Demand forecasting accuracy: A number of factors make forecasting demand especially difficult in the fashion field, including seasonality of merchandise, changing market trends, and shifting buyer preferences. When companies are unable to produce accurate demand forecasts, they are likely to encounter costly inventory imbalances, as described above.
  • Managing multiple SKUs: Inventory must be managed at the unit or SKU level. But because clothing makers produce enormous quantities of individual products—and in various colors, sizes, and fabrics—they must deal with an equally enormous number of SKUs. Yet, in order to successfully manage their inventory, these businesses must find a way to precisely track and manage them all.
  • Seasonal inventory fluctuations: As mentioned earlier, fashion industry trends change season to season, and different items sell better at different times of the year. These frequent fluctuations make getting inventory levels to align with seasonal patterns of demand quite tricky.
  • Supply chain disruptions: Few industries are immune from supply chain disruptions. Most clothing makers rely on a network of suppliers situated around the globe. Common global supply chain issues, such as logistics delays, supplier underperformance, and geopolitical turmoil, can have a significant impact on lead times and raw material availability, ultimately impacting business’s inventories of supplies, WIP, and finished products.
  • Inventory shrinkage (theft, damage, loss): Inventory shrinkage refers to inventory losses resulting from theft, damage, internal fraud, or even misplacement. Shrinkage negatively impacts item availability and overall profitability.
  • Inefficient tracking systems: Some clothing companies continue to use manual inventory tracking methods or disconnected tracking systems, which leads to inaccuracies, order delays, and overall limited inventory control. Given the issues of seasonality, trend changes, large numbers of SKUs, and other industry-specific factors, these systems are generally unfit for the job of keeping tabs on apparel items.
  • Return and exchange management: Fashion is known for a high rate of returns and exchanges among buyers. Their handling only adds to the complexity of inventory management, making it more difficult to maintain accurate inventory levels and effectively manage replenishment.
  • Multichannel inventory synchronization: Most apparel companies have embraced multichannel sales models to broaden their reach and increase revenues. They may be selling in their own stores, through other retail outlets, via their own ecommerce platforms, and in other online stores or marketplaces all at once. Keeping track of changes in inventory levels across these various sales channels can be challenging but is critical to prevent running out of items or selling items no longer in stock.
  • High storage and holding costs: Holding on to excess inventory increases expenses in the forms of greater warehousing and associated carrying costs. But it’s a particular issue for apparel companies, which are dealing with fast-changing trends and frequent new-product introductions.

Key Functions and Features of Apparel Inventory Management Systems

Inventory management systems for the apparel industry are designed to address a particular challenge or stage in the clothing supply chain. When choosing such a system, look for these primary features:

  • Raw material inventory management: Clothing manufacturers use all sorts of raw materials for garment production, including fabrics and trims, yarns and threads, plastics and dyes. Raw material inventory management tracks these supplies to help avoid production delays or tying up too much capital in excess materials. Raw material inventory management features include demand forecasting, supplier management, and real-time tracking to optimize stock levels.
  • Work-in-progress inventory management: WIP inventory refers to unfinished products at some stage of production prior to completion, such as fabric cut into patterns but not yet sewn together. WIP inventory management keeps tabs on these would-be garments and related items as they move through the stages of the manufacturing process. This helps clothing companies maintain accurate production timelines and makes it easier to spot bottlenecks.
  • Finished goods inventory management: This is the bread-and-butter of apparel inventory management: overseeing ready-to-sell apparel from the factory floor and across warehouses, stores, and online platforms. Finished goods must be tracked by their individual SKUs for a company to truly know how much stock it has available for sale, where it is, and when it’s time to reorder to meet customer demand. Investing in good processes is also key to optimizing inventory levels and identifying shrinkage and other issues.
  • Seasonal inventory management: As previously mentioned, clothing makers face the particular challenge of managing stock that is influenced by seasonal demand fluctuations and fashion trends. That’s where seasonal inventory management comes into play by helping apparel businesses maintain adequate stock levels. This function incorporates the analysis of historical sales data with demand forecasting to optimize purchasing, production, and sales and clearance strategies.
  • Multichannel inventory management: For apparel companies that sell their inventory through a mix of physical stores, ecommerce platforms, and marketplaces, keeping inventory data synchronized across these various channels is critical. Integrated multichannel inventory management helps businesses track stock levels for all of them, ideally automatically updating a centralized data store in real time, as inventory is sold. This function can also be valuable when dealing with returns and exchanges by automatically updating the database when an item comes back into inventory or when one goes out as part of an exchange.
  • Just-in-time (JIT) inventory management: Companies that adopt JIT inventory management strive to keep enough inventory on hand to meet current demand, without sinking too much capital in excess stock and its related holding costs. Apparel makers can take a JIT approach with every type of item, providing they have a reliable network of suppliers and accurate sales forecasting and demand planning capabilities to ensure that products are available exactly when needed.
  • Consignment inventory management: This is a specific kind of inventory management function that deals with apparel that is held by a retailer but still owned by the supplier until sold to the end customer. Consignment inventory benefits suppliers by getting their items in front of a broader range of customers. Good consignment inventory management requires clear agreements and communication between a clothing company and retailer. Accurate tracking, reporting, and auditing is also mandatory to ensure that apparel suppliers are paid for items sold and that they know how much inventory they still have out on consignment.
  • Dead stock inventory management: Dead stock, also known as dead or obsolete inventory, is an unfortunate fact of life in fashion. Companies inevitably produce or order items that become no longer in demand, whether due to obsolescence, seasonality, or changing trends. Managing inventory to minimize dead stock—such as through price markdowns, promotions, or even recycling—can go a long way toward preserving profit margins. It also frees up warehouse or storage space for viable items.

10 Key Strategies for Apparel and Clothing Inventory Management

Solid inventory management strategies are necessary for apparel and clothing organizations to successfully meet customer demand, maintain positive cash flow, control costs, and protect profit margins. Here are 10 proven approaches these businesses can adopt to boost their inventory management effectiveness:

  1. Implement real-time inventory tracking: Keeping tabs on inventory, wherever it is, and in real time ensures that the company has accurate data on inventory levels at any given moment, improving its ability to fulfill customer orders and avoid overselling. Implementing an enterprise inventory management system in conjunction with scanning or tagging technology can deliver this valuable information to help clothing businesses synchronize inventory across warehouses and sales channels and to avoid errors or stock discrepancies.
  2. Use automated inventory management software: Investing in inventory management technology that automates tasks, such as order processing and reordering, provides significant value in the forms of reduced manual labor and less human error. It can also centralize data that, with integrated analytics capabilities, drives more informed decision-making. When inventory management is integrated as a module in an enterprise resource planning (ERP) platform, the data and insight can be shared across the enterprise and used for greater collaboration among related functions, including finance, supply chain management, sales and marketing, and HR.
  3. Optimize stock levels with demand forecasting: The ability to predict customer demand based on historical sales data, seasonal shifts, and market trends is essential for effective inventory management. Enterprise software that incorporates demand forecasting capabilities—now increasingly driven by artificial intelligence for better analysis of large data sets—into inventory management processes helps clothing makers better align their inventory decisions with anticipated demand. Then they can optimize stock levels accordingly, decreasing the likelihood of either costly overstocking or understocking.
  4. Categorize inventory by season, style, and demand: Apparel makers have to sort their inventory by SKU (type, size, color, etc.), but they can also categorize items by season, style, or demand to allow for more nuanced inventory management and decision-making. These classifications can help inventory managers, for example, prioritize the production of high-demand items to increase profitability.
  5. Set up an efficient reorder system: Timely replenishment of dwindling stock is critical to prevent stockouts and maintain a certain level of buffer or safety stock, but trying to do so manually is a fool’s errand. Many apparel makers find it beneficial to set automated reorder points or replenishment alerts within their inventory management systems that consider such factors as lead times, logistics, and anticipated changes in demand.
  6. Conduct regular stock audits and cycle counts: Because of the risk of loss, errors, or other forms of inventory shrinkage, it pays to double-check inventory numbers. Conducting regular stock audits helps uncover discrepancies and confirms inventory data accuracy. Apparel makers may want to set up weekly cycle counts for their high-value inventory. Technology, like bar code scanners or RFID tags, can be used to audit physical inventory counts and reconcile them with digital records.
  7. Integrate inventory across multiple sales channels: Multichannel sales can multiply an apparel maker’s reach and revenues, but it’s essential to integrate inventory data from all of these points to prevent overselling, stockouts, or other similar issues. Implementing an enterprise inventory management system that syncs stock data with sales across multiple sales ensures that inventory information stays up to date.
  8. Manage slow-moving stock with discounts or promotions: Inventory that seems to be collecting dust can cause some real damage to the bottom line. So it’s important to manage slow-moving inventory in a way that salvages some value for the company. Clearance approaches, such as deep discounts, flash sales, or bundling with better-selling items, may help transform dead stock into some positive cash flow and free up warehouse space for other items.
  9. Establish a streamlined returns process: This is especially important for purchases made online, where the average return rate for online apparel orders in the US was 24.4% in 2023, according to Coresight Research. Customers today have come to expect an easy return and exchange process. Just as important, clothing makers need to streamline these processes internally to minimize delays and restock sellable items as quickly as possible. Technology solutions (often integrated within inventory management software) can help manage and automate the return process, which includes inspecting items, updating inventory numbers, and routing returned items to the appropriate location.
  10. Leverage data analytics for continuous improvement: Improving inventory management is never a one-and-done exercise. Although certain strategies can wield a significant impact—such as adopting inventory management automation solutions or implementing real-time inventory tracking—businesses will always have to contend with ongoing challenges, disruptions, and marketplace shifts. Employing data analytics to identify inefficiencies, bottlenecks, opportunities for cost reductions, and other benefits on a regular basis can yield options for continuing to improve inventory management. Refining and optimizing inventory management over time will help boost inventory management performance, improve customer satisfaction, and increase revenues and profitability.

Speed Up Inventory Management With NetSuite

Apparel companies that take a proactive, data-driven, and automated approach to improving their clothing inventory management are in prime position to ride the ups and downs inherent in the fashion marketplace. Deploying an ERP system designed specifically for the apparel industry—with integrated inventory management capabilities—is key. NetSuite’s cloud-based ERP platform melds leading-edge inventory management capabilities with other enterprise modules, such as order management, point-of-sale, ecommerce, supply chain management, financial and accounting, marketing, and CRM, ensuring that everyone is working with the same data and providing a holistic view of business performance.

In addition, as a standalone solution, NetSuite Inventory Management offers apparel makers a real-time view of inventory across all sales channels—warehouses, retail stores, pop-up shops, dropshippers, third-party logistics companies, or any other places where they might need to store or manage inventory. Having accurate stock data empowers clothing businesses to optimize the amount and types of inventory they keep on hand to avoid overstocking (thereby freeing up cash) or understocking (and missing out on sales). The system includes demand-based planning capabilities that factor in historical demand, sales forecasts, and seasonality; intelligent fulfillment capabilities to minimize handling and shipping expenses and decrease the cost of goods sold; dynamic management of reorder points to maintain optimal stock levels; and Smart Count automatic inventory cycle counting. In addition, it provides a dashboard that highlights company- or user-selected key performance indicators, inventory counts by location, projected stock levels, and alerts for anticipated shortages or overstocks.

Companies in the clothing and apparel sector have their work cut out for them when it comes to inventory management and optimization. Fleeting fashion trends and seasonal merchandise, reams of SKUs, supply chain challenges, frequent returns and exchanges, and multichannel sales are just some of the challenges they must contend with. Investing in the appropriate inventory management or ERP system and implementing proven best practices are crucial for accurately tracking, managing, and optimizing inventory levels. It also results in more informed inventory decision-making, lower costs, increased effectiveness, happier customers, and healthier profit margins.

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Clothing Inventory Management FAQs

How do clothing stores keep track of inventory?

Though a small apparel store may opt for using spreadsheets to track its SKUs and perform regular physical inventory audits, this approach is usually inefficient and prone to errors. It’s far more effective for apparel retailers to adopt software solutions, such as inventory management systems, point-of-sale systems that update stock levels with each sale, and barcode scanners used for checkouts and stocking. When this technology is implemented as part of a larger enterprise resource planning platform, it leads to a much more integrated inventory management process.

What are the 4 functions of inventory management systems?

Four common functions of inventory management are raw material inventory management, used to track/manage the raw materials necessary to manufacture a product; work-in-process inventory management, used to track/manage unfinished products at various stages of pre-completion; finished goods inventory management, used to track/manage products that are ready to sell; and multichannel inventory management, used to track inventory sold across a variety of platforms, such as brick-and-mortar stores, internal or third-party ecommerce sites, pop-up shops, and online marketplaces.