Is purposeful giving an answer to retail’s inventory glut?

Discussion
Photo: Good360
May 29, 2020
George Anderson

Retailers across the U.S. forced to close stores due to the COVID-19 outbreak have watched their inventories pile up. The inventory to sales ratio in the country hit an almost 11-year high in March, according to a recent report by the Federal Reserve Bank of St. Louis. The situation is expected to look even worse when the April report is made public in the coming weeks, reports The Wall Street Journal.

Apparel retailers and brands with closed stores have resorted to a number of tactics to move excess inventory.

Kohl’s, among many (most) others, offered deep discounts to online shoppers. The net result was that the chain’s gross margin in the first quarter fell to 17.3 percent, down from 36.8 percent for the same period in 2019. Even at sharply lower prices, Kohl’s was unable to generate nearly enough volume to offset the loss of customer traffic in stores. In the end, the chain’s net sales fell 43.2 percent.

Others have chosen to repurpose existing inventory at a time of societal need. Banana Republic, Old Navy and Blade + Blue are among businesses that have used remnants from clothing typically sold on store racks to make face masks.

Some may be considering mothballing seasonal inventory from this year and take another shot at selling it in 2021.

Another option is for retailers to donate excess inventory to philanthropic organizations.

Photo: Good360

The arguments for taking this approach is that it helps fill a need made worse by the growing number of unemployed in the country. Government figures show 40.7 million have filed for unemployment insurance since mid-March. The resulting goodwill created with the public can help increase a brand’s equity in both the short- and long-term.

Benefits for this approach extend beyond clearing unwanted goods to free up space for current merchandise. Donating products can also be less expensive than other ways of moving excess inventory, while putting companies in the position to reap significant tax benefits, as well.

Shari Rudolph, chief development officer for Good360, a national nonprofit organization that matches retailer and brand donations with reputable charities, told RetailWire in an email exchange that corporate donors increased their contributions 150 percent year-over-year for March and April. Old Navy has partnered with Good360 to contribute over $30 million in goods to families in need. A program with Nike saw the brand donate its entire inventory of Air Zoom Pulse sneakers (30,000 pairs) to healthcare workers.

DISCUSSION QUESTIONS: Is purposeful giving a viable way for fashion brands and retailers to address the current inventory glut? Do you see right and wrong ways for companies to engage in activity of this sort at this time?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"A terrific gesture on its own. However the value to brand equity may outweigh the philanthropic benefits. "
"The good will value alone should be worth it from the business perspective."
"Donating excess seasonal inventory to a non-profit may be the smartest choice from both financial and social responsibility perspectives."

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23 Comments on "Is purposeful giving an answer to retail’s inventory glut?"


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Mark Ryski
BrainTrust

This is a terrific idea for several reasons: 1.) much of the inventory is out of season, which means its value is low; 2.) selling the excess inventory to off-pricers like TJX will only serve to make competitors stronger, 3.) it’s great for the environment since some of the merchandise would have ended up in a landfill and 4.) the American public needs help. Have you noticed the epic lines at food banks in major cities across the nation? These people will also need clothing banks.

Jeff Sward
BrainTrust

Great idea. Take a clue from the food banks and open clothing banks. Ditto for fall/winter if demand doesn’t return to meet supply.

Shep Hyken
BrainTrust

There’s a line in this article that sums it up for me: “The resulting goodwill created with the public can help increase a brand’s equity in both the short- and long-term.” There is a group of customers that want to do business with companies that give back. Beyond that, it’s simply a business decision to discount today, hold and hope they buy “tomorrow” (as in maybe next season), etc. Some questions: Does holding the inventory versus cash flow, even at a discount, make sense? Or does the cash and a low margin – or no margin, even a loss – make better sense? Or does the charitable deduction and tax benefit make sense? All questions to consider.

Neil Saunders
BrainTrust

There is no way that the current glut of inventory can all be shifted by discounting, packing it away, or selling it to off-price and closeout retailers. As such the only other option is for it to be destroyed/recycled or given away. Out of those two alternatives, giving it away to those in need is the most ethical one and is the right thing to do. The slight issue is that retailers will give away that apparel that is least in demand which means sizes at the extremes, designs that weren’t popular, and so forth.

Jeff Weidauer
BrainTrust

The good will value alone should be worth it from the business perspective. Couple that with the fact that it’s the right thing to do and it should be an easy decision.

Steve Montgomery
BrainTrust

As noted in the article there are several benefits of purposeful giving. Lower cost of disposal, creates good will for the brand and helps people in need. Other benefits include maintaining a brand’s pricing position in the market and clearing the way for new seasonal inventory.

Liz Crawford
BrainTrust

Charitable giving is a strategic move for these retailers. Not only will their businesses get a write-off, but unemployed workers will also get NEW clothing. And not for nothing, they will also be wearing their brands.

Jeff Sward
BrainTrust

This once-in-a-lifetime event will make a fascinating case study some day. Who packed and held over seasonal inventory? Who offered deep discounts? Who practiced purposeful giving? Who had a robust enough e-commerce business that helped minimize the problem? And I don’t mean looking at Target or Walmart. I mean studying the many mall retailers who had to shut down. Take a snapshot at the end of spring/summer 2021 after all this chaos is annualized. Who navigated through most successfully? Who is still standing and still struggling? Who went bankrupt?

Suresh Chaganti
BrainTrust

Fast fashion brands and retailers have a tough choice to make. Of all the damaging outcomes – financial, environmental damage with product going into landfills, customers getting used to deep discounts – donation is the most sensible thing to do. This should create good will in the minds of consumers, and will probably have a favorable financial impact because of the tax code.

Richard J. George, Ph.D.
BrainTrust

A terrific gesture on its own. However the value to brand equity may outweigh the philanthropic benefits. If nothing else, I would expect it to break ties for consumers choosing between particular retailers or brands.

Rich Kizer
BrainTrust

As an old department store guy, I remember my greatest mentor by the advice he constantly gave me. He confronted me one day in December about an extreme amount of summer apparel packed away in stock rooms. I told him it was residual that had not sold, and had been deeply marked down without movement, and that we were holding it for sidewalk sales in the late spring. He then explained that it costs us 1 percent of the cost of goods a month to hold that merchandise and, with an original keystone mark-up that we already had taken 30 percent markdowns on, would take further markdowns on the sidewalk. This meant we were merely tying up dollars we could invest in new product and sell at a profit and enjoy the fortunes of inventory turns. So donating makes huge sense.

Lee Peterson
BrainTrust

It’s the right thing to do, it’s the human thing to do, so there shouldn’t be a question about it IMO. Take a page from REI or Patagonia, who have been doing things like this for a long time and building tremendous brand equity. I hope even Nike takes a page from their own credo and just do it too.

Brian Numainville
BrainTrust

Simply put, it is the right thing to do and the benefit will come in the form of good will in the eyes of shoppers, especially younger generations who feel a stronger pull toward those who give back to the community.

Phil Rubin
BrainTrust
4 months 1 day ago

One of the impacts of the pandemic is that consumers have a stronger filter on how brands are acting during these times and what matters. Rising in importance, according to our research at Bond and that of others, are factors that include how brands act towards partners, suppliers and, importantly, communities. Purposeful giving correlates directly with what consumers increasingly expect as they are more aggressively shutting out “bad actors” and trying new brands.

Scott Norris
Guest

A lot of small merchants who’ve been shut down by COVID-19 and now burned down by the looters are going to need help getting back on their feet here in Minneapolis and St. Paul. As an example, the SportsDome shoe store on University Avenue was a beloved fixture of the community – it was always a delight to see the lines of excited shoppers when a new Air Jordan release would drop. It’s gone now. The manufacturers would create a lot of good will by helping folks like them get re-established.

Craig Sundstrom
Guest

I think that’s a great idea. Perhaps Target, being prominent in the area, can serve as a facilitator. Unfortunately — well, perhaps “fortunately” in a general sense — I think the losses in the Twin Cities are dwarfed by the nationwide glut.

David Naumann
BrainTrust

Excess out of season inventory is a huge problem for apparel retailers. Mothballing seasonal merchandise for a year is risky, as styles may change and it ties up working capital. Donating excess seasonal inventory to a non-profit may be the smartest choice from both financial and social responsibility perspectives.

Ananda Chakravarty
BrainTrust

Although a noble gesture, and perhaps even positive for corporate brand image, retail giving doesn’t really offer the right solution. It sometimes doesn’t really move the inventory at all, at least in terms of holding costs. Almost 80-90% of donated clothing ends up in a landfill anyway according to the EPA. In addition, organizations like Goodwill or Goods360 don’t have the warehouse space to manage such large quantities of apparel and other goods, much less organize and distribute it. The world consumed (pre COVID-19) about 80 billion pieces of clothing every year.

Shari Rudolph
Guest

Hi Ananda. One of the benefits of working with Good360 is the fact that we can handle scale and significant volumes. We have our own storage and processing facilities and we have a network of vetted and approved nonprofits around the country who also help with organization and distribution. It’s one of the unique things about our model. Donors are absolutely right to vet the capabilities of partners in order to understand whether they are a good fit or not.

Craig Sundstrom
Guest

I’m not going to tell retailers not to do this, and intuitively it seems preferable to throwing it out (well, in some ways … see below), but obviously a business would do better if it can sell it; I would think an effort should be made … even if at a deep discount.

Now back to the “better than throwing it out” part; this dilemma well illustrates why I think this downturn is likely to be prolonged. If retailers simply mothball, and later are successful in selling, then there’s a whole season of manufacturing that isn’t going to take place. So the manufacturers lose out (even it if it’s next year and in some other country/countries). If it’s tossed, then the retailers suffer large losses (and if it’s donated — altruistic as it may be — then they’ve lost money AND supplied what is, quite frankly, now a competitor). Hmmm.

Mel Kleiman
BrainTrust

If you make it a bottom-line decision, it looks like a win for everyone.

1. Great PR;
2. Tax write off;
3. Reduction of inventory and storage.

Shari Rudolph
Guest

Thanks for all of the thoughtful and insightful comments, and for the general support of the concept of donating goods. Aside from the various business benefits that were outlined in the piece and in the comments, it’s important to remember how important donations are in this moment with more than 40 million Americans out of work. While the demand began with PPE (and continues!), we are now seeing a significant increase in demand for a wide variety of personal and home goods as COVID-19 evolves from a health crisis to a full-blown economic crisis.

April Sabral
Guest

I think this is a fantastic idea, as many consumers look to see what brands are doing response to the current situation. There is a surplus, why not do the right thing with that inventory and make a difference? I like seeing these stories as there is always something positive out of any given circumstances.

wpDiscuz
Braintrust
"A terrific gesture on its own. However the value to brand equity may outweigh the philanthropic benefits. "
"The good will value alone should be worth it from the business perspective."
"Donating excess seasonal inventory to a non-profit may be the smartest choice from both financial and social responsibility perspectives."

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