HOME TRUTH | The Vicious Cycle of Sale

HOME TRUTH | The Vicious Cycle of Sale

Traditionally, end of season sales have played an important role for retailers and brands to clear out unsold inventory. This mattered because production cycles were slower and product specifications were often seasonal - think winter jackets being sold in winter because it is cold outside. 

Nowadays, sales have become much more grounded in generating high volumes of turnover, rather than to simply help to move along production cycles of seasonal products. We find ourselves in a never-ending sales period, only disrupted by new drops and even larger sale events such as Black Friday in the western world, and Singles Day in China. The impacts of this, besides people fighting over cheap electronics (we’ve all seen the videos), are detrimental to the environment, and the workers who make the items for these sales. It fuels both overproduction and overconsumption, which are, to say the least, not sustainable. Like, at all.

This article is meant to shed some light on this sales craze, explain the economics behind it, and outline a possible, more sustainable, alternative to it. 

First, it’s important to consider the question; ‘How is this even possible?

The answer to this question is rooted in economics. We dusted off some old Econ textbooks, and dug up a thing or two about Economies of Scale; the cost advantage experienced by a company when increasing its output (Corporate Finance Institute). In other words, when you make more, it becomes cheaper. Now, when you pair this with the good old ‘lowering prices to increase demand’ dynamics of Supply and Demand laws, you have the perfect blueprint for being able to run constant sales that offer products at insanely low prices, while still making a crazy amount of profits.

Let’s look at this through the perspective of a modern fashion retailer - we’ll call him G. G has to produce garments all year long, and for every order he places with his suppliers he has to estimate how much of which style, size, and color needs be ordered. Now, while a smaller order might have the chance of selling out, it won’t allow him to benefit from lower unit prices generated by economies of scale. On top of that, if he sells out mid-season, then a substantial amount of profit has been missed, and the revenue will most likely go to a competitor who still has product available. So the alternative is to place a larger order resulting in a lower unit price, and to take the risk that not everything gets sold by the end of the season. This is where the sale comes in. G banks on the Supply and Demand principle to kick in, knowing that by lowering the price, the demand will increase. According to an article published by Forbes in 2020, fashion retailers like G will consciously overproduce around 30%-40% of their collection, knowing these goods will only be sold during sales season, if at all. 

Long answer short; Companies produce specifically for sales, as the low prices made possible by producing large quantities increase demand by consumers. And since there is no better sales strategy than ‘a good deal’ in a capitalist society, Sales have become very very profitable.


The Solution

Well, there are multiple, but the main one we want to put forward in this article, and the one we believe is an effective way to prevent overconsumption and overproduction, is the pre-order system.

A pre-order system eliminates overproduction by matching supply directly to demand. For fashion retailer G, it would mean that instead of blindly estimating how much he will sell, he gives his customers the opportunity to view and order items before they are produced. This will give G an overview of how many items, including style, size, and color, need to be ordered and produced by his suppliers. Everything that isn’t needed is not produced.

Pre-orders also cut the ‘urgency’ aspect that sales generate out of the buying process, which is a big factor when it comes to overconsumption. Just take a look at any Black Friday marketing campaign out there. It pressures consumers to act on impulse, by generating fear of missing out on a great deal. Once a purchase has been made, a euphoric, short-term gratification kicks in - we all know the feeling you get when you buy something new. By using pre-orders, it would take away the immediate, short term satisfaction of having bought something, and instead shift the gratification towards finally receiving the item you have waited for  (Just like Christmas!). 


When it really comes down to implementing an alternative to Sales Cycles, fashion retailers like G will have to make a decision; 

  1. Produce for sales, resulting in increased profits, but at the cost of the environment and labor conditions.

OR

  1. To implement a pre-order system, resulting in less overproduction and overconsumption, but at the cost of reduced profit margins.

In the end, it all comes down to the core values of the company. Capitalism runs on the demand for endless growth, and many fashion companies exist to generate profits. But that doesn’t have to be the only reason to exist as a fashion company. It surely isn’t ours, and that is why we have chosen to implement a pre-order system in order to fight overproduction, and subsequently, overconsumption.

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