Combined with rampant inflation and a suddenly cautious consumer, that sets up a dangerous dynamic for fashion.
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Across the industry, merchants who spent last year avoiding the downward spiral of promotions are already cutting price to clear inventory fast rather than risk a recession next year with too much stock on hand.
But after the stop and go of the pandemic and the supply chain disruptions that had stores unable to stock shelves last year, the inventory status quo has been disrupted — and perhaps changed forever.
The question now is: How much of the inventory on hand is just too much, and how much of it is a matter of having more perennial favorites on hand (or on the way)?
A WWD survey of 14 retailers that recently reported quarterly results showed that inventories coming into the holiday season were 22.5 percent higher on average from a year ago — from Macy’s Inc.’s ultra-disciplined 4.3 percent increase to Tapestry Inc.’s 39 percent rise.
But that’s in comparison with last fall, when COVID-19 backups and manufacturing delays held stores back during the key season.
While the initial impulse was to stock back-up to not miss out, that led to a glut of inventory this year that needed to be cleared as shoppers pulled back, first at lower-priced chains like Walmart Inc. and Target Corp. and then further up the retail food chain.
But many fashion executives argue that the inventory they have on their books is either the right inventory or a reflection of supply chain changes.
Scott Roe, chief financial and chief operating officer of Coach parent Tapestry Inc., said the company’s in-transit inventory is up 50 percent due to longer lead times.
“Overall, we are pleased with the makeup of our current inventory, which is highly penetrated in core and seasonless styles,” Roe told analysts on a conference call. “We are well positioned into holiday and continue to expect to end fiscal year ’23 [ending in July] with inventory up single digits compared to the prior year as we’ve taken proactive measures to align our second half inventory receipt plans with our updated revenue outlook.”
Ditto for Michael Kors parent Capri Holdings.
Thomas Edwards, the company’s chief financial and chief operating officer, said, “We feel really good about the quality of the inventory. We’re in a great position for holiday. And this compares to last year when we really didn’t have the inventory that we wanted or needed. So we feel like we’re in a much, much better position.”
Even so, there are still plenty of retailers — particularly at lower income levels where inflation in food and fuel is stinging — that are looking to move excess goods this holiday season.
Richard Hayne, cofounder, chairman and chief executive officer of Urban Outfitters Inc., said the company’s namesake chain started the third quarter with “heavy inventory left over from the bullwhip effect brought on by COVID-induced supply chain issues. The brand is working through this excess inventory and is planning to be much cleaner by the end of Q4.”
Walmart wrestled inventories down from a 25.5 percent increase at the end of the second quarter to a 12.6 percent rise at the end of the third.
And while it still has about $1 billion in goods it considers excess, that’s down from about $3 billion in July.
Walmart chief financial officer John David Rainey said inventory has gone from stuck in the supply chain to now stacked up in the store.
“We’re making improvements,” Rainey said. “Apparel and certain categories in [general merchandise] are the heavy categories, and we’ll continue to work through those.”
One way or another, it’s a retail landscape with a sketchy consumer and a lot of inventory sitting around. Some of that inventory is in safer, “core” products.
But no doubt, more would like to be in Macy’s position with just a small increase and an opportunity to chase goods.
“Our inventory is in great shape,” said Jeff Gennette, chairman and CEO. “We have roughly 55 percent newness for holiday, 30 percentage points higher than 2019, and we are not saddled with older receipts in pandemic category overstocks.
“With our strong vendor relationships and mix of private brand and licensed brands, we can chase into areas of strength that warrant it and have a flexible pricing model to quickly adjust promotions and markdowns if demand does not materialize,” Gennette said.
Supply chain disruptions and consumer swings have many merchants sitting on a lot of inventory headed into the holiday season.
Inventory at End of Most-recent Quarter (in millions)
American Eagle Outfitters Inc.
Ross Stores Inc.
Urban Outfitters Inc.
The TJX Cos. Inc.
Ralph Lauren Corp.
Capri Holdings Ltd.
Burlington Stores Inc.
Source: S&P Captial IQ, WWD