Should fashion retailers mothball spring?

Discussion
Photo: RetailWire
Apr 20, 2020
Nikki Baird

Through a special arrangement, presented here for discussion is a summary of a current article from the blog of Nikki Baird, VP of retail innovation at Aptos. The article first appeared on Forbes.com.

In fashion, mothballing is possible but traditionally considered unthinkable.

Sitting on inventory is equivalent to stuffing cash in a mattress. Yes, you technically “have” the cash, but it’s not doing any work for you. And it’s unprotected — boxes of clothes in a warehouse could literally go up in flames. It’s also risky because fashion tastes change.

Yet, with retailers likely having to mark down below cost between 70 to 80 percent of inventory across the marketplace just to get it out of stores, the risks and strategies of holding inventory until next year change.

At best, fashion retailers had sold through the early part of their spring 2020 seasons. Some basics or carryovers can be extended into summer and fall with little risk. Some stand no chance of working as part of a fall assortment.

If some inventory is packed and held until next year, you don’t have to mark it down all at once. The strategy assumes fashion tastes don’t change dramatically over the next year. It does lock up cash, but it also makes room for other inventory that has a better chance to sell.

But which inventory do you pack up? Banking on tastes not changing much during a pandemic, retailers may choose to pack up the highly seasonal inventory that consumers haven’t seen yet. They can stretch basics into summer and fall without having to take deep markdowns and supplement with more on-trend fall pieces to help those basics look new again.

Yet some retailers may choose the opposite: packing up the perennials. The thought is, they’ll be able to sell them next spring, no problem. Yes, they’ll have to mark down the highly seasonal stuff that is in stores and the supply chain right now, but then they’ll be able to bring in all new items for fall — new basics, new trends.

The difference in the two approaches comes down to two things: how desperately a retailer needs cash and how confident they are in being a tastemaker vs. a trend follower.

DISCUSSION QUESTIONS: Should fashion retailers consider packing up spring 2020 inventory for 2021? Would you lean towards holding basics or trendy inventory?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"A lot depends on the nature of the product and the financial condition of the retailer. "
"What I would assume is that highly-seasonal products need to be sold online rather than in stores, as best as they can be."
"Get on the phone and see where your vendors stand and what is going to make the best path for the both of you. Nobody said it would be easy!"

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18 Comments on "Should fashion retailers mothball spring?"


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Bob Phibbs
BrainTrust

I read about Levi’s doing this with many of their jeans – because they can. In desperation for cash, many will need to sell what they have to be able to pay for what they will order. Most will take the giant markdowns as the mother of all clearance sales commences and get through this as if spring were a bad dream.

Jeff Sward
BrainTrust

Lots of mall retailers will be able to pack up inventory, sell it a year later, and nobody will ever know they are buying aged inventory. For some retailers, the aesthetic and seasonality just don’t change that much year to year. That’s inherent in the underlying brand promise. But if the retailer has enough data to tell them what part of their inventory is off trend this year, might as well liquidate now when things open up. No reason to wait a year to sell it. Retailers may also want to recalibrate their content going forward. Liquidate the “old strategy” product now. Make room now for go-forward assortments to be as smart as possible.

Zach Zalowitz
BrainTrust

While understanding there’s no “right answer” across the board here, what I would assume is that highly-seasonal products need to be sold online rather than in stores, as best as they can be. A bird in the hand now, even at reduced margin, would free up some cash while moving inventory in the process. My thought here is simply that we don’t know how long this will last. We could very well be in a second peak in September/October of this year having the same conversation about fall inventory. Cash is king right now, and some cash now is better than potentially less later.

Neil Saunders
BrainTrust

Packing up this year’s spring product is an option for some. For others, selling at a discount will be necessary in order to generate some cash flow. Another challenge will be ensuring product is not too trend-led, meaning it does not age well.

Paula Rosenblum
BrainTrust

This is a very complicated question. It all depends on the terms of their revolving credit facilities (asset based loans). Aged inventory is a curse and is carved out of the borrowing base, so retailers have to be very careful to remain solvent. I suspect that one reason Neimans had to declare was landlords demanding rent, and the creditor devaluing existing inventory. The combination of those two is like when the music stops in a game of musical chairs. Scrambling and disaster

Rob Gallo
BrainTrust

For those that can do it, packing it up makes sense. Anyone that pays attention to Gilt, Hautelook and Rue La La over time can tell you that merch from prior seasons still sells. Those sites sit on merch and pulse the discount to get it to move.

Dick Seesel
BrainTrust

A lot depends on the nature of the product and the financial condition of the retailer. If a store is cash-starved now, it needs to sell that inventory (online, in its reopened stores, to an off-pricer or jobber) rather than sitting on it for a year. On the other hand, if the retailer has the financial cushion through its financing mechanisms, there is some product that could sit for a year in order to preserve future cash needs. Men’s shorts, tees and polos come to mind as a category without a huge variation in style or color palette from one year to the next.

Stores shouldn’t ignore their vendors’ willingness to take goods back and hold them for another year — more commonplace in outerwear than in other categories but not out of the question if the vendor has the financial strength (and relationship with the retailer) to handle it.

Lee Kent
BrainTrust

Absolutely! These are the days of deal making. Every retailer needs to be talking to their vendors and looking hard at their own trends. We may not all be in the same boat but we sure are in this together and, quite frankly, nobody has the upper hand in this game. There is no one size fits all. Get on the phone and see where your vendors stand and what is going to make the best path for the both of you. Nobody said it would be easy!! For my 2 cents.

Georganne Bender
BrainTrust

Tying your cash up in old merchandise is never a good idea. Maybe you can get away with it if you sell basic items that never change from season to season, but fashion? That’s a crap shoot.

Retailers would be better advised to sell this merchandise at a deep discount now – clear it out – otherwise it just becomes a problem again next year.

Try and reach consumers who are still buying. Chains should get more creative in their marketing; 50 percent off the store every other day isn’t getting the job done. Plan a big event to sell via your website or social media. We are seeing lots of indies throwing weekly sales events on Facebook Live and customers are responding.

Brandon Rael
BrainTrust

The short answer is that it depends on the retailer, their financial circumstances, and the types of apparel they sell. Most fashion based retailers are in the process of preserving their liquidity, cash reserves, and selling spring product at a deep discount to generate some cash flow. Regardless, when things slowly open up again, the fashion-forward items will be sold at a deep discount. The retailers who focus on basics, such as certain categories of jeans, chinos, etc. have the luxury of mothballing their spring product.

Rich Kizer
BrainTrust

The only way packing away product makes sense is when your buyer finds overloads of underwear and such. Bankers shiver when they learn of old goods in backrooms. All successful retailers want to talk about their inventory control and turn rate attained. Rightly so. The old goods in boxes for next summer’s sidewalk sales are literally holding the turn rates of the store hostage and and destroy maintained markups. OTBs must shrink because of the inventory levels held hostage in the stock room.

All that leads to poor productivity, holding the store hostage and hurting the opportunities for the store. One brilliant banker once told me that packed away product will increase costs 1 percent a month. If no one wanted the product in-season, and markdowns don’t work, take the write-off to a charity. Old merchandise is not like wine, it does not get better with time.

Mohamed Amer
BrainTrust

Where cash is king, they will sell at huge discounts to live and fight another day. Few have the balance sheet to mothball spring inventory for a year and be able to place orders for summer and fall.

Ralph Jacobson
BrainTrust

In addition to the comments made so far, this also depends upon the specific retailer. If the retailer is dependent upon new seasonal releases and their audience is acutely in tune with the latest styles, then, yes, sell now, because you have no idea what will be in fashion next spring. Your first discount is your best (most profitable) discount. If you’re a less up-to-the-minute fashion retailer, then carrying over may make sense. Look at you inventory levels, assortment and balance sheet.

Dick Seesel
BrainTrust

You’re right, Ralph … in particular, “fast fashion” does not age like fine wine.

Ricardo Belmar
BrainTrust
This is a very complex issue that has to account for loans, cash flow, and future order placement – all of which have to be balanced for each individual retailer to maintain its business operation. Some will no doubt need to sell off inventory at a discount (which will likely provide the off-price brands the best merchandise selection in their history) while others will be able to hold merchandise until next year. This will be heavily dependent on their assortment and how much of their mix is basics vs. trendy fashion. I suspect trends have largely gone on hold this spring from a consumer perspective with casual clothing taking on new heights as we all get comfortable on Zoom calls for day to day work. The flipside of this for me is that most fashion houses have in turn had to shut down their manufacturing or at the least converted to producing needed gear for health workers in the form of masks, gowns, etc. This may mean there will be less trendy merchandise in the… Read more »
Joe Skorupa
Guest

Inventory distortion is going to plague retailers well into the fall. The only options are pack-and-store, mark down, donate, push some spring items into summer, liquidate stock, and, most beneficial of all, maximize online sales. Retailers that cannot maximized e-commerce, such as Ross, TJX, and Burlington, will take the biggest hits and pay a significant penalty for being single-channel retailers in an omnichannel world.

Shikha Jain
BrainTrust
While some retailers are lucky enough to consider themselves tastemakers, most stores won’t be the first to debut a style, and their spring stock will be stale by 2021. To get rid of inventory, retailers often turn to promotions. While popular, site-wide discounts have thus far been unsuccessful in triggering the purchases needed to clear out inventory, and an over-reliance on promotions will only erode brand equity over time. A better approach is a strategic one that parses inventory by category and focuses on those which are likely to sell amid the pandemic. In an era of virtual meetings, sales of tops are up while sales of bottoms are down. Instead of trying to entice shoppers with flashy clearance discounts, adapt push campaigns to highlight the key categories within your inventory that align with current consumer needs and behaviors. For retailers who can afford to mothball from a cash and liquidity perspective, this presents a unique marketing opportunity. Younger shoppers will give their loyalty to companies that share their values of sustainability and social responsibility.… Read more »
Rodger Buyvoets
BrainTrust

The answer to this is highly contextual of course: more fashion retailers are already starting to think about becoming pandemic-proof, meaning they are developing lines that are sustainable to shifting trends and making contingency plans. The other context is financial. The winners will be those that can are able to keep a continuous cash flow while packing up their inventory without it aging. It’s complicated to say which strategy is right as it depends on the brand image and product. One thing’s for sure — discounting is always on the table.

wpDiscuz
Braintrust
"A lot depends on the nature of the product and the financial condition of the retailer. "
"What I would assume is that highly-seasonal products need to be sold online rather than in stores, as best as they can be."
"Get on the phone and see where your vendors stand and what is going to make the best path for the both of you. Nobody said it would be easy!"

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