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To Sell or Not to Sell: That’s a question many clothing retailers have been asking themselves lately.
Abercrombie and Fitch,
ANF -9.00%
It reported earnings last Thursday. Product inventory ended July 30 was up 70 percent from last year. Victoria’s Secret,
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In addition, as reported on Thursday, the commodity level has seen a 46 percent rise in the comparable period. Gap GPS -1.90%
and Urban Outfitters URBN -1.90%
They said that 37% and 44% of the items in their immediate settlements are respectively. Together, the four apparel companies are sitting on $1.7 billion more in merchandise than a year ago.
You can handle that excess merchandise in one of three ways: bite the bullet and write now; Make it heavily discounted; Or pack it away in storage until the next season when consumer demand returns. In many cases, companies use a combination of the three strategies, but the amount depends largely on their research.
While many have attributed inflation and tight wallets as the reason behind the lack of sales, this explanation has some merit. By Abercrombie & Fitch,
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The adult-focused name brand posted its highest second-quarter sales since 2015. However, the decrease in results was due to a lack of sales in Hollister’s customer base on a lower revenue scale. A similar segment was seen at Macy’s, where its namesake department store’s comparable store sales fell 2.8%, while top-tier Bloomingdale’s posted a 5.8% increase. Clothing sellers who think it’s the main issue rely more on discounts and clearances.
But the reason is that customers may be leaving money on the table simply because they overcharged on certain items of clothing. Casual, home-made clothes were also underperforming brands these days, such as Hollister, Old Navy and Kohl’s.
“On the road, consumers are not fighting with prices. Companies, on the other hand, shouldn’t expect to jump in at a discount,” said Simon Siegel, equity analyst at BMO Capital Markets.
If companies see the main culprit behind unsold inventory, the smart move is to pack away for next season when customers are itching to replace their laundry. It comes with its own luggage. Maintaining inventory involves storage and comes with the inevitable write-down risk if selected merchandise does not suit customers in future periods.
Still, that’s a potential risk for most apparel retailers, which will face some tough price competition in the coming months. Companies that have mentioned such a strategy include Carter’s,
Children’s Clothing Company and Gap,
He said last Thursday that roughly 10 percent of the 37 percent increase in production was for packaging and handling. Kohl’s said in its latest earnings call that the roughly $82 million in excess inventory included products it has packaged, such as sleepwear and fleece.
Inventory glut won’t leave any clothing retailer unscathed, but companies that do proper customer due diligence can come out on top.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
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