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For apparel retailers, a tailor-made way to manage inventory during the pandemic

Would jumpsuits sell well this fall—and at what price point? Should markdowns start the week before Christmas or after? Should clearance items be moved to a third-party reseller?

These were the kinds of questions that Jason Cherok, Maura Goldrick, and Brian Ruwadi, McKinsey partners, had helped US apparel retailers think through on numerous occasions, as they sought to fine tune their inventory pricing to improve margins. Then coronavirus hit—and those questions got trickier: Would anyone have an occasion to wear a jumpsuit? Who might buy one?

Clothing inventory is often bought six to nine months in advance of when it will hit racks, and much of it expires every season; winter jackets can’t sell in summer, and fashion styles come and go. In a typical project, a dedicated McKinsey team would work with the retailer to develop and deploy Markdown Advisor, a set of analytics and tools from Periscope, on an enterprise system. The work would often include training the client in how to manage this new capability.

New Periscope analytics help apparel retailers manage inventory during the pandemic
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But in March, COVID-19 shut down all but essential-goods stores in a matter of days. Many apparel retailers, some of whom had already been struggling before the crisis began, were now having to furlough entire divisions of their organizations, as they watched sales dwindle to a single online channel.

“Client discussions started, as they normally did, with topics around inventory management and quickly escalated into existential questions,” remembers Maura. “What was their starting point in this environment? How should they think about their people? How do they calculate their cash position? What will they look like in six months? How will they be able to pay rent? They were facing these incredibly difficult planning issues with a fraction of their former team, and everyone was working remotely for the first time.”

The situation was dire and time was critical. “We wanted to use the same analytics capabilities we always had but open the aperture to address these broader, more fundamental questions,” says Jason. “We innovated through necessity. It was like trying to figure out how to change a tire on a moving car.”

The team began that transformation by creating a new working model—one that could deploy similar analytics in a faster and more scalable way—delivering insights in as little as three weeks. They swapped out a dispersed, interdisciplinary team structure for a small, central group of more than ten data scientists, translators, and engineers.

That central team quickly built an innovative analytics engine on the Periscope platform, that leverages much of the Markdown Advisor logic, but has now been streamlined for speed. 

A huge body of industry data including COVID information can now be tailored to a retailer’s unique locations, market segments, products and channels.

Brian Ruwadi, McKinsey senior partner

The team expanded the data and analytics capacity, which had already included benchmarks, performance analytics, and historical and current market trends. They added data sets related to consumer sentiment, information from the World Health Organization (WHO) and projections from trusted sources on potential dates that states could reopen.

Most importantly, the engine maintains store-level granularity, which is critical for accuracy. In a world that is changing so quickly, retailers can no longer assume that what works in one particular footprint will work in another. “A huge body of industry data including COVID-specific information can now be tailored to a retailer’s unique locations, market segments, products and channels,” explains Brian.

Today, clients receive two perspectives through the revamped platform: an overall baseline understanding of their inventory in the context of the pandemic, coupled with store-specific scenarios that model out how different recovery timelines will impact their overall inventory position.

More importantly, the revamped platform frees up retailers’ most valuable resource: their people. “It performs the initial data crunching, a giant task, so the client doesn’t have to,” says Maura. “There is more time to translate Periscope’s insights into strategies for solving inventory challenges—and building resilient businesses.”