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Analyst Says ‘Robust’ Discounts Will Move Overweight Fashion Inventory

Retailers and vendors are still learning their post-Covid lessons as “just-in-time” inventory planning gives way to “just-in-case.”

Forecasting errors mean retailers are getting whipsawed after overordering and then finding themselves stuck with late-arriving product that shoppers no longer wanted.

Goldman Sachs’ consumer staples analyst Jason English describes this scenario as a “durable goods recession,” that will yield “robust” clothing discounts now that consumers aren’t so interested in the loungewear that sustained retail assortments throughout the pandemic. “We do think those discounts will probably run through year-end,” he said.

Retailers can pack away some items for next season. But there are limits to how much, especially with merchandise still flowing in and only so much shelf space to store everything.

Vendors have a different problem. They can pull back on manufacturing or keep production as is, hoping that orders pick up later on. But then they’ll need to figure out where to store it all and absorb the losses should those hoped-for orders fail to materialize.

Fashion brands can stock core basics by telling factories to delay production, but that causes issues for upstream manufacturers and suppliers. For now, novelty fashion involves is something of a guessing game that requires a good amount of luck. Retailers know they need the good stuff to entice customers into stores, and they can cancel orders up to a point. Even without cancellations, vendors still face the dreaded curse of markdown money when they tally up end-of-season sales.

Stanley Black & Decker, for one, has trimmed its product line by nearly half to save on costs. It’s fortunate that its products are still quite relevant one season later. But the cautionary warning here for retailers and fashion firms is depth of the appliance brand’s assortment edit, which could signal that consumer spending is heading for a nosedive. That raises another problem for down the road—recessions are prime time for retailers to close stores, which narrows the distribution channel for all suppliers in the game.

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When Walmart slashed its profit outlook last month, CEO Doug McMillon said it was marking down apparel to encourage customers to buy. He “anticipat[es] more pressure on general merchandise in the back half.” Walmart is said to be changing some terms with suppliers, such as adding new transportation fees by the start of fall, as it aims to cut costs. The retailer recently cut 200 corporate jobs.

Target was among the first to lean into a smaller home goods section to right-size its inventory in June. A blog post that same month by CEO Brian Cornell said the company was taking steps to adjust post-Covid. With profits on the line, Target is either delaying receipts on some goods or taking ownership on an as-needed basis. The discounter is also asking vendors to pay for transportation costs by ordering from a supplier’s U.S. warehouse instead of paying for shipments from China, according to Reuters. This helps Target free up both space for incoming in-season merchandise and cash to buy goods they might lack. And even though vendors grumble about added cash flow burdens, most will play nice for fear of alienating a major customer.

Fast fashion e-tailer Asos is also delaying fall receipts. One source said the British e-tailer has also canceled some autumn orders. The retailer has been fighting a “significant increase in returns rates,” it said in June. It wasn’t immediately clear if the returns surge stems from fit issues—a problem plaguing Asos—or if consumers had a change of heart now that U.K.’s rising inflation rate is forcing them to make tough choices.

VF Corp., meanwhile, rolled out a supply chain financing program with most of its finished goods suppliers to ensure it gets the goods to meet consumer demand. With VF taking inventory control one month earlier at the point of shipment instead of the point of destination, it’s also paying its suppliers sooner. Starting Sept. 1, the Supreme and Dickies parent will increase payment terms with most of its finished goods suppliers. This ensures the Vans owner becomes the preferred customer of choice, while improved payment terms helps suppliers manage their cash flow.

Promoting healthy supplier relationships is a corporate responsibility. Early in the pandemic Ralph Lauren made sure its suppliers—considered “critical stakeholders of the company“— were paid for both “finished goods and goods already in production.”