Full-price clothing retailers me-too off-pricers with a packaway inventory strategy
Gap, Express and Kohl’s are among the retailers getting ready to employ packaway sales to reduce the markdown blow of last holiday’s late deliveries.
The practice is more commonly used by off-pricers, such as TJX and Nordstrom Rack.
On Gap’s analyst call last week, Katrina O’Connell, Gap’s EVP and CFO, said the strategy enables Gap to use cash to optimize margins in the near term and benefit working capital the following year as the packaway inventory lowers receipts.
“We’re confident that we will be able to integrate our pack and hold inventory with future assortments as the majority of goods are carefully selected seasonal core items we routinely use to round out our assortments. Examples of these more timeless styles are basic shorts or short sleeve tees and tanks,” Ms. O’Connell said.
Kohl’s inventory at the end of the second quarter included $82 million in packaway goods from late holiday receipts for basics, such as sleepwear and fleece. Jill Timm, CFO, said on Kohl’s earnings call, “This merchandise will be set in Q3 ahead of the holiday season.”
On Express’ first-quarter conference call, Tim Baxter, CEO, said the retail only held packaway products that had an extended shelf life, repositioning some for Express’ outlet business. “We packed and held full-sized runs of that product, and there had to be two things that were true in order to pack and hold the product. Number one, it had to have a high sell-through for the products that did get out to the stores and the website. And number two, it had to fit into the assortment architecture for EFO [Express Factory Outlet] next year. And we were very clear with the teams on both of those, and that’s why we have high confidence we’ll be able to sell that at full price next year,” he said.
Five Below, however, now emphasizes markdowns to clear excess inventories after being “too heavily invested” in packaways a few years ago. Joel Anderson, CEO, said on Five Below’s first-quarter call, “I think that worked really well when we were just a small regional player. But as you become national, that becomes a really complex thing.”
- Gap (GPS) Q2 2022 Earnings Call Transcript – The Motley Fool
- Gap to ‘mothball’ unsold inventory until next year – RetailWire
- Kohl’s (KSS) Q2 2022 Earnings Call Transcript – The Motley Fool
- Express (EXPR) Q1 2022 Earnings Call Transcript – The Motley Fool
- Five Below, Inc. Q1 2022 Earnings Call Transcript – Seeking Alpha
DISCUSSION QUESTIONS: Has packaway become a more standard and less risky practice for full-price retailers looking to maximize inventory clearance? What advice would you have about limiting the losses from holding packaway inventory?