Will Christmas 2022 be the terminal squish of retail’s mushy middle?
Photo: RetailWire

Retail’s long-struggling “mushy middle,” consisting of mid-price retailers without a strong value proposition and brand identity, has taken a bigger holiday hit than more strongly differentiated retailers, according to one retail expert.

Retail expert and RetailWire BrainTrust member Katie Thomas, lead at Kearney Consumer Institute, told Yahoo Finance that retailers in the middle have had to discount hard during the holiday season. Price cuts for some Black Friday sales reached as high as 60 percent, indicating that these types of retailers, in particular, are sitting on a great deal of backstock.

By August of this year, retailers such as Gap, Express and Kohl’s were already announcing plans to integrate packaway inventory from the previous year into their sales mix.

Express, in particular, on its first quarter conference call said that it only packed away inventory that already had a high sell-through online and that fit in with the planned architecture of the product assortment — features that the chain believed would allow it to sell the merchandise at full price despite being held for a year.

The reality of the stock position that Express and similar retailers now face, however, paints a picture of a less controlled inventory strategy.

Retailers have been putting “stashed away mountains of unsold basics” on clearance in attempts to get rid of the product, according to Reuters. This includes past-season merchandise like shorts and summer dresses.

Lockdowns, reduced foot traffic and supply chain shakeups during the pandemic have disrupted retailers’ ability to sell through merchandise as anticipated.

Retailers that have performed better throughout the pandemic overall have still faced inventory issues.

Target, for instance, even though it lives in the lower tier of the market, earlier in the year announced that it would be putting merchandise on markdown in order to right size its inventory and lowered its second quarter forecast as a temporary move while managing pandemic-era difficulties and returning to sustainable growth.

By Q3, however, Target was still having problems. It experienced a same-store sales decline in October, despite running major promotions during the month. Target attributed much of the slowdown to consumer headwinds like inflation.

BrainTrust

“So many retailers are challenged with inventory management at the moment that this doesn’t have to be the ultimate indication of doom.”

Melissa Minkow

Director, Retail Strategy, CI&T


“As long as the retailer is solvent, it will live to fight another day. Of course there’s a place in the middle!”

Paula Rosenblum

Co-founder, RSR Research


“Their problem is far more serious than ‘differentiation.” They need to find a core set of product where they can become the customers go-to shopping outlet.”

Doug Garnett

President, Protonik

Discussion Questions

DISCUSSION QUESTIONS: Do you see selling discounted packaway merchandise significantly damaging chains in the “mushy middle” of retailing? What do retailers positioned in the middle need to do to differentiate themselves from their primary competitors along with those targeting the low and high ends of the market?

Poll

How likely are retailers positioned in the middle to post better results in 2023 than this year?

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17 responses to “Will Christmas 2022 be the terminal squish of retail’s mushy middle?”

  1. Mark Ryski Avatar
    Mark Ryski

    Every retailer needs to manage their unique situation — forget generalizations. Inventory management is part of it, but only one part. Retailers who reside in the “mushy middle” will find it even more challenging to attract and convert shoppers without a clear, compelling value proposition.

  2. Neil Saunders Avatar
    Neil Saunders

    The rising tide of the past few years has floated all retail boats. That tide is now ebbing and it is revealing that some vessels have rather large holes in their hulls. Most of these are, indeed, in the murky middle. Their future does not look too bright and some will need to be sent to the scrapyard.

  3. Bob Phibbs Avatar
    Bob Phibbs

    Where was the vaunted AI in all of this? For five or more years, we were told AI would solve specifically managing merchandise. It’s a few years into COVID-19 — how could so many algorithms have been so wrong? Too many silos not speaking with each other? Trying to keep factories going even when there was not enough demand? Sheer boneheadedness at not managing better? I don’t know, but this is not the death of anyone — even those in the always-maligned “mushy middle.”

  4. Melissa Minkow Avatar
    Melissa Minkow

    The erosion of mid-price retail has been a long tail journey. I don’t think the sale of packaway inventory is necessarily *the* nail in the coffin, but it’s certainly a marker of a struggle. The reality is that a number of variables caused this, and so a number of symptoms have to be seen in order for it to be the end. So many retailers are challenged with inventory management at the moment that this doesn’t have to be the ultimate indication of doom.

  5. Lee Peterson Avatar
    Lee Peterson

    Staying out of the middle is easier said than done once you’ve grown into it. Most of the retailers in the middle are large or very large (think Gap, Kohl’s, Macy’s, Bed Bath & Beyond, etc.) so it’s almost impossible for them move up the chain towards the higher end, the way RH did, and much easier to move more towards Walmart or Target. The problem then becomes Walmart and Target, who own the space. It’s a daunting challenge, but the message is; don’t go there in the first place. At this point, the middle has no choice but to head down the perception road to discounter status or, as we’re already seeing in some cases, venture into a slow death spiral. Let’s face it: it doesn’t look good, now or down the road.

  6. David Naumann Avatar
    David Naumann

    Several mid-tier retailers have packaway inventory and I doubt much if any of it will be sold at full price. Discounting to get rid if the inventory is a reality. Lower margins are much better than writing off the inventory. And during the holiday season, flooded with heavy promotional pricing, even fresh merchandise is commonly discounted. It is the nature of the retail holiday season. The optimal scenario for retailers is to pare down their inventories and have a fresh start in 2023.

  7. Jeff Sward Avatar
    Jeff Sward

    Packaway inventory is getting an unfair bad rap here. There’s a whole range of basics and key items that can legitimately be sold next year. Abundance is the problem. The time/action calendar is the problem. Committing to next year’s production before knowing the full outcome of the current year is the problem. Planning that repeats prior year mistakes is the problem. And then chaos in the supply chain magnifies the problem. Until retailers embrace occasional scarcity they will tend to err on the side of abundance, and therefore clearance markdowns. Create and manage scarcity.

  8. Gene Detroyer Avatar
    Gene Detroyer

    There is a reason why these retailers are called the “mushy middle,” though just plain “mushy” could be a better descriptor.

    These retailers stand for nothing, and while they once upon a time may have, they have lost their reason for being in the customer’s mind. I wonder how high they would rank on a brand recall list in a poll?

    It will not be a good season, and they have the most to lose.

  9. Ken Morris Avatar
    Ken Morris

    If Express or other fashion brands are packing away items that could be out of fashion when returned to the shelves, then that’s clearly a problem. Otherwise, I think the strategy of these so-called “mushy middle” retailers should be to focus on their bottom line. How can they turn lower top lines into profitability? Improve logistics. Reduce returns. Use tech — what they have already and what they should have — more strategically and effectively.

    Also, if price is becoming less of a differentiator, brands should consider pushing one or more themes that resonate with their shoppers. Sustainability, social causes, etc. Of course, these will end up being the same themes, so the race will go to the most creative and spot-on marketers.

  10. Paula Rosenblum Avatar
    Paula Rosenblum

    Retailers in general have too much inventory. They’re also trading down. Personally, if they have the cash, I’d just mentally write off this holiday season as a one-off anomaly. The sin would be to continue to buy at crazy levels (this has happened before).

    As long as the retailer is solvent, it will live to fight another day. Of course there’s a place in the middle!

  11. Ryan Mathews Avatar
    Ryan Mathews

    Undifferentiated retailers are an endangered species — full stop. Unless you are selling high-end electronics goods and luxury brands, odds are you have too much back stock. It’s one of the “bullwhip” effects of COVID-19. Because we like novelty we forget the majority of consumers live in the “mushy middle” of our economy, so the market is there, but only for retailers who either sell different things or – and this is more likely the case – find different ways of selling the same things. Hint: Discounting isn’t the answer unless all you want to do is clear your balance sheet and hasten the all-but-inevitable.

  12. Andrew Blatherwick Avatar
    Andrew Blatherwick

    There are two separate issues here, the first being the carry-over merchandise. This does not reflect well on the retailer as they should have been better at managing their inventory, however we get more hung up about this than the consumers who are just looking for bargains. The second issue is the survival of the “squishy middle” as in all tough times poor performers get weeded out and that is no bad thing; if they are not smart, efficient and with a real reason for being there then they probably should go. This makes space for better more focused retailers to enter the market or grow their share.

  13. Doug Garnett Avatar
    Doug Garnett

    Retailers in the middle need to find a reason to exist. What’s missing in this analysis is the steady drip of former business elements being lost to specialty stores and warehouse stores. Consider department stores. In 1972 I bought my first fly fishing pole at J.C. Penney. In 1990, I bought a VCR at Macy’s. In the early 2000s we bought high end cookware at Macy’s. Today, they retain only some of the cookware — all those other product, plus vacuums and other departments, have been lost to new retail options.

    Their problem is far more serious than “differentiation”. They need to find a core set of product where they can become the customers go-to shopping outlet. That’s entirely missing today.

  14. Craig Sundstrom Avatar
    Craig Sundstrom

    “Target for instance, even though it lives in the lower tier of the market” This statement confuses me: does Matt mean the lower tier of the middle market, or just lower overall (in which case I’m not sure they even belong in this discussion). But wherever we place Target, it provides an object lesson on how to differentiate yourself: a strong identity as fashion forward — to use that old phrase — rooted somewhat in reality, and somewhat in slick marketing. Other retailers might use a different approach — indeed all can’t use the same one — but if you can establish in the public’s mind “XXX store = (whatever),” the battle is won.

  15. Kai Clarke Avatar
    Kai Clarke

    No, this holiday season will not be the terminal squish of retail’s mushy middle, but instead will represent similar sales and markdowns as previous years. Proper inventory management has always represented a difficult to manage portion of success at retail. This article’s limited examples do not indicate the full, broad, exposure of retail sales. Cars, both new and used, are still in short supply and are selling for premiums, often above MSRP. The same can be said for the DIY/hardware industry where sales are strong and inventory difficult to keep balanced. The retail grocers are seeing continual OOSs because of larger than expected demand and difficult to maintain inventory. Add to this a record number of people who are employed (more than at any other time in history), which points to a continual growth in our GDP and we have retail demand that is fed by higher than standard cash flow with limited places to go except to spend, spend, spend….

  16. William Passodelis Avatar
    William Passodelis

    I do not think this will be the death knell, but I do think it is an indicator — an indicator of systemic problems that may combine to cause a bigger disruption going forward. It is the coat of paint that you strip planning to repaint and make everything nice — and underneath a lot of the wood is rotten….

  17. ZoharG Avatar
    ZoharG

    The issue with the “mushy middle” is an abundance of inventory that lacks direction and the ability for shoppers to find products they need and want. Middle retailers try to appeal to the masses, offering hundreds of styles that can be difficult for consumers to search through. For example, if consumers search online for a “brown top” and 300 items appear, they will get overwhelmed, probably abandoning the inquiry, and the retailer will be left with all these tops.

    However, by using smart online merchandising to promote excessive inventory items in both collections and relevant search terms, the retailer can strategically target their audiences, leading to more sales.

    A favorable social media review can make all the difference for middle brands. Target’s social media program engages influencers to review products, which can lead to the item going viral and boosting the brand to a sellout.

17 Comments
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Mark Ryski
Mark Ryski
Trusted Member
9 months ago

Every retailer needs to manage their unique situation — forget generalizations. Inventory management is part of it, but only one part. Retailers who reside in the “mushy middle” will find it even more challenging to attract and convert shoppers without a clear, compelling value proposition.

2
Neil Saunders
Neil Saunders
Noble Member
9 months ago

The rising tide of the past few years has floated all retail boats. That tide is now ebbing and it is revealing that some vessels have rather large holes in their hulls. Most of these are, indeed, in the murky middle. Their future does not look too bright and some will need to be sent to the scrapyard.

7
Bob Phibbs
Bob Phibbs
Active Member
9 months ago

Where was the vaunted AI in all of this? For five or more years, we were told AI would solve specifically managing merchandise. It’s a few years into COVID-19 — how could so many algorithms have been so wrong? Too many silos not speaking with each other? Trying to keep factories going even when there was not enough demand? Sheer boneheadedness at not managing better? I don’t know, but this is not the death of anyone — even those in the always-maligned “mushy middle.”

2
Melissa Minkow
Melissa Minkow
Member
9 months ago

The erosion of mid-price retail has been a long tail journey. I don’t think the sale of packaway inventory is necessarily *the* nail in the coffin, but it’s certainly a marker of a struggle. The reality is that a number of variables caused this, and so a number of symptoms have to be seen in order for it to be the end. So many retailers are challenged with inventory management at the moment that this doesn’t have to be the ultimate indication of doom.

5
Lee Peterson
Lee Peterson
Member
9 months ago

Staying out of the middle is easier said than done once you’ve grown into it. Most of the retailers in the middle are large or very large (think Gap, Kohl’s, Macy’s, Bed Bath & Beyond, etc.) so it’s almost impossible for them move up the chain towards the higher end, the way RH did, and much easier to move more towards Walmart or Target. The problem then becomes Walmart and Target, who own the space. It’s a daunting challenge, but the message is; don’t go there in the first place. At this point, the middle has no choice but to head down the perception road to discounter status or, as we’re already seeing in some cases, venture into a slow death spiral. Let’s face it: it doesn’t look good, now or down the road.

2
David Naumann
David Naumann
Member
9 months ago

Several mid-tier retailers have packaway inventory and I doubt much if any of it will be sold at full price. Discounting to get rid if the inventory is a reality. Lower margins are much better than writing off the inventory. And during the holiday season, flooded with heavy promotional pricing, even fresh merchandise is commonly discounted. It is the nature of the retail holiday season. The optimal scenario for retailers is to pare down their inventories and have a fresh start in 2023.

5
Jeff Sward
Jeff Sward
Active Member
9 months ago

Packaway inventory is getting an unfair bad rap here. There’s a whole range of basics and key items that can legitimately be sold next year. Abundance is the problem. The time/action calendar is the problem. Committing to next year’s production before knowing the full outcome of the current year is the problem. Planning that repeats prior year mistakes is the problem. And then chaos in the supply chain magnifies the problem. Until retailers embrace occasional scarcity they will tend to err on the side of abundance, and therefore clearance markdowns. Create and manage scarcity.

3
Gene Detroyer
Gene Detroyer
Trusted Member
9 months ago

There is a reason why these retailers are called the “mushy middle,” though just plain “mushy” could be a better descriptor.

These retailers stand for nothing, and while they once upon a time may have, they have lost their reason for being in the customer’s mind. I wonder how high they would rank on a brand recall list in a poll?

It will not be a good season, and they have the most to lose.

4
Ken Morris
Ken Morris
Active Member
9 months ago

If Express or other fashion brands are packing away items that could be out of fashion when returned to the shelves, then that’s clearly a problem. Otherwise, I think the strategy of these so-called “mushy middle” retailers should be to focus on their bottom line. How can they turn lower top lines into profitability? Improve logistics. Reduce returns. Use tech — what they have already and what they should have — more strategically and effectively.

Also, if price is becoming less of a differentiator, brands should consider pushing one or more themes that resonate with their shoppers. Sustainability, social causes, etc. Of course, these will end up being the same themes, so the race will go to the most creative and spot-on marketers.

4
Paula Rosenblum
Paula Rosenblum
Active Member
9 months ago

Retailers in general have too much inventory. They’re also trading down. Personally, if they have the cash, I’d just mentally write off this holiday season as a one-off anomaly. The sin would be to continue to buy at crazy levels (this has happened before).

As long as the retailer is solvent, it will live to fight another day. Of course there’s a place in the middle!

2
Ryan Mathews
Ryan Mathews
Active Member
9 months ago

Undifferentiated retailers are an endangered species — full stop. Unless you are selling high-end electronics goods and luxury brands, odds are you have too much back stock. It’s one of the “bullwhip” effects of COVID-19. Because we like novelty we forget the majority of consumers live in the “mushy middle” of our economy, so the market is there, but only for retailers who either sell different things or – and this is more likely the case – find different ways of selling the same things. Hint: Discounting isn’t the answer unless all you want to do is clear your balance sheet and hasten the all-but-inevitable.

3
Andrew Blatherwick
Andrew Blatherwick
Member
9 months ago

There are two separate issues here, the first being the carry-over merchandise. This does not reflect well on the retailer as they should have been better at managing their inventory, however we get more hung up about this than the consumers who are just looking for bargains. The second issue is the survival of the “squishy middle” as in all tough times poor performers get weeded out and that is no bad thing; if they are not smart, efficient and with a real reason for being there then they probably should go. This makes space for better more focused retailers to enter the market or grow their share.

3
Doug Garnett
Doug Garnett
Member
9 months ago

Retailers in the middle need to find a reason to exist. What’s missing in this analysis is the steady drip of former business elements being lost to specialty stores and warehouse stores. Consider department stores. In 1972 I bought my first fly fishing pole at J.C. Penney. In 1990, I bought a VCR at Macy’s. In the early 2000s we bought high end cookware at Macy’s. Today, they retain only some of the cookware — all those other product, plus vacuums and other departments, have been lost to new retail options.

Their problem is far more serious than “differentiation”. They need to find a core set of product where they can become the customers go-to shopping outlet. That’s entirely missing today.

0
Craig Sundstrom
Craig Sundstrom
Active Member
9 months ago

“Target for instance, even though it lives in the lower tier of the market” This statement confuses me: does Matt mean the lower tier of the middle market, or just lower overall (in which case I’m not sure they even belong in this discussion). But wherever we place Target, it provides an object lesson on how to differentiate yourself: a strong identity as fashion forward — to use that old phrase — rooted somewhat in reality, and somewhat in slick marketing. Other retailers might use a different approach — indeed all can’t use the same one — but if you can establish in the public’s mind “XXX store = (whatever),” the battle is won.

1
Kai Clarke
Kai Clarke
9 months ago

No, this holiday season will not be the terminal squish of retail’s mushy middle, but instead will represent similar sales and markdowns as previous years. Proper inventory management has always represented a difficult to manage portion of success at retail. This article’s limited examples do not indicate the full, broad, exposure of retail sales. Cars, both new and used, are still in short supply and are selling for premiums, often above MSRP. The same can be said for the DIY/hardware industry where sales are strong and inventory difficult to keep balanced. The retail grocers are seeing continual OOSs because of larger than expected demand and difficult to maintain inventory. Add to this a record number of people who are employed (more than at any other time in history), which points to a continual growth in our GDP and we have retail demand that is fed by higher than standard cash flow with limited places to go except to spend, spend, spend….

0
William Passodelis
William Passodelis
9 months ago

I do not think this will be the death knell, but I do think it is an indicator — an indicator of systemic problems that may combine to cause a bigger disruption going forward. It is the coat of paint that you strip planning to repaint and make everything nice — and underneath a lot of the wood is rotten….

0
ZoharG
ZoharG
9 months ago

The issue with the “mushy middle” is an abundance of inventory that lacks direction and the ability for shoppers to find products they need and want. Middle retailers try to appeal to the masses, offering hundreds of styles that can be difficult for consumers to search through. For example, if consumers search online for a “brown top” and 300 items appear, they will get overwhelmed, probably abandoning the inquiry, and the retailer will be left with all these tops.

However, by using smart online merchandising to promote excessive inventory items in both collections and relevant search terms, the retailer can strategically target their audiences, leading to more sales.

A favorable social media review can make all the difference for middle brands. Target’s social media program engages influencers to review products, which can lead to the item going viral and boosting the brand to a sellout.

0