Increased pressure on margins and inventory in retail
In a context of retail transformation, inventory management has become a central lever for operational and financial performance. It directly impacts margins, capital, and the ability of organizations to effectively manage their operations.
However, the way retail operates has fundamentally evolved.
Demand volatility is intensifying due to the diversification of distribution channels, promotions, digital trends, and external disruptions. At the same time, supply chain constraints and lead times make it increasingly difficult to maintain balance. This growing complexity is putting traditional planning models under strain.
Today, many retailers face a paradoxical situation, with 10% to 15% overstock while simultaneously experiencing stockouts on 20% to 25% of key items during peak periods. This dual imbalance reflects a structural challenge in aligning supply, demand, and purchasing decisions. In an environment marked by margin pressure and rising costs, every planning error immediately translates into lost performance.
A dual impact: margin erosion and capital pressure
This phenomenon goes far beyond operational challenges. It results in increased markdowns to clear excess stock, gradual margin erosion, capital tied up in unproductive inventory, and higher working capital requirements.
In other words, inventory becomes a value-destroying lever when it is poorly managed. The key point is that these imbalances are not solely linked to in-store or supply chain execution. They often originate upstream, in planning and purchasing decisions.
The shift of value creation upstream
A major transformation is underway in retail: value creation is shifting to early-stage decisions.
The most successful retailers are now focusing their efforts on:
- buying depth
- collection seasonality
- initial allocation
Performance is no longer driven solely by the ability to react, but by the ability to anticipate and orchestrate decisions from the outset.
Abderraouf Eloucheffoune
EPM Manager
Klee Performance
Klee Performance’s experience with retail projects shows that margins are determined well before the first sales are made. The decisions taken when defining product assortments, purchasing volumes, and sales assumptions have a direct impact on inventory levels, future markdowns, and seasonal profitability. The highest-performing retailers are generally those that succeed in aligning finance, merchandising, and purchasing teams around a shared performance trajectory from an early stage.
Toward integrated management between finance and merchandising
Organizations are evolving toward more integrated management models. Finance and merchandising are jointly steering investment decisions, simultaneously factoring in margin objectives, inventory constraints, and cash impacts.
Processes are increasingly based on scenario planning approaches, enabling organizations to anticipate multiple possible trajectories and make more effective trade-offs.
2026–2028: toward more controlled and sustainable performance
Retailers that strengthen upstream management are already seeing results ranging from +8% to 12% in GMROI (Gross Margin Return on Investment) and a 15% to 20% reduction in markdown reliance.
These results are based on a simple principle: fewer errors upstream and greater control during the season.
In an uncertain environment, margin is built from the very first decisions. The organizations that succeed will be those capable of aligning planning, supply chain, and financial objectives. To explore these challenges further, download the full retail trends analysis looking ahead to 2030.
