Few things in life are certain other than death and taxes, except excess stock in Q4 leads to an unhappy new year.
That last point was illustrated very vividly in 2017 when a wave of store closures and bankruptcies swept through the apparel retail sector. This year, reports indicate department stores are acting with an abundance of caution.
A recent Reuters article stated that traditional chains like Macy’s, J.C. Penney and Dillard’s are placing miserly order sizes for the holidays with the hope of a Christmas miracle in the form of reorders on in-demand goods.
The idea of smaller, more frequent deliveries makes sense but questions remain about whether this segment of retail can pull it off—or whether that’s even what’s behind the smaller orders industry insiders are seeing.
Pipe dream or reality?
“We’ve seen orders go down year over year on a two year stack at least 30 percent and some of those were due to closures and some of that was just to being leaner,” said Rebecca Duval, a retail and apparel analyst for BlueFin Research Partners, adding anecdotal evidence suggests the former reason could be driving quite a bit of it. “If you walk through any of the department stores, inventory does not necessary feel like it’s lean.”
Things aren’t looking sparse online either. Though the article cites various sources who said order sizes have been down, a scan of the online offerings for these stores indicates stock levels are on par with last year, according to data analytics firm StyleSage.
Taking a closer look at the product mix at Macy’s, StyleSage compared private label levels to those for brands. “For private label, there’s not been a decrease in SKU counts. For Michael Kors and Coach, there has been a decline but that’s on the vendor side,” said Elizabeth Shobert director of marketing and digital strategy at StyleSage, meaning it’s not the retailer’s choice.
Attempting to move to a leaner inventory scenario—which has been a hot topic for years—is especially challenging for department stores owing to their size, Duval said.
“There are these huge ships and there’s so many different moving parts. You’re not as nimble because the decision making is going through too many processes and there’s too many layers to it,” she said, adding the challenges aren’t all internal. “When you have so many different types of suppliers for wholesalers, it’s difficult to chase into items in a meaningful way.”
To help facilitate the change, Duval said the chains need to employ available technology.
“The inventory management system some have in place is supplier based so there are triggers that will be set off allowing them to chase into product,” she said. “If you do it right, you should technically be able to order less of your core stuff and take more risk in fashion or cold weather, keeping basics and core inventory off the books and being able to take a bigger position on some of the trends.”
Quantity or quality?
Though the Reuters article draws parallels between department stores and fast fashion retailers like Zara and H&M, the comparison falls apart pretty quickly, Shobert said.
“Yes, ordering less is great, you won’t have as much inventory left but is it stuff people want? That’s why it works for Zara” she asked. “You’re not addressing that part of the problem. It’s a Band-Aid for the larger issue in play here.”
Echoing that, Duval said, “It’s not necessarily cut more, its cut the right things.”
For her, the places to start are the aging, and in some cases geriatrically styled, private label collections like Macy’s Karen Scott and Alfani. “It needs to be refined in terms of merchandising. Then you’d have the opportunity to buy into some special categories that could be a driver, particularly during the holidays.”
While Shobert said private label could be a key to better merchandising because it’s an area where these chains can exercise more control over their supply chains, it’s just one piece of the puzzle. “They have the right mix of private and national brands but it’s about having a strong enough relationship with the brand to get the exclusive product,” she said. “That’s why you win.”
Though she’s not seeing much evidence of an overall inventory diet, Duval said she is noticing a repeat of last year which saw a scarcity in a few specific categories, like outerwear. But instead of an overarching strategy toward lower stock levels, she attributes it to retailers’ fear of getting stuck with cold weather items if winter fails to materialize as it did two years ago.
Ultimately during the holidays, customers need gifts by the big day, and they’re looking to retailers to help them transform into Santa.
In the cases in which stores have underestimated demand or won’t be able to reorder in time, the differentiator will be how well they handle the job of saving Christmas.
“If I don’t see [the item I want] there is there something indicating to me how I can get my hands on it?” Shobert said. “If they haven’t properly addressed that, then I think there’s going to be some challenges.”