The COVID-19 crisis has shed a light on the struggles of apparel retailers, especially since so many cancelled seasonal orders, but suppliers that otherwise now aren’t getting paid by these retailers are forced to operate with less capital and more unsold merchandise.
In a recent webinar moderated by Coresight Research CEO and founder Deborah Weinswig, Michael Relich, chief operating officer at PSEB (PacSun-Eddie Bauer) and Navjit Bhasin, CEO and founder of Newmine, discussed the state of retailers and their supply chain partners during the pandemic, PSEB’s continued adoption of omnichannel fulfillment technologies and the role of returns in driving post-COVID recovery efforts.
“Basically, every retailer I know cancelled their summer orders,” Relich said during the webinar. “That’s put tremendous pressure on the supply chain. So now if you’re a brand, you’re stuck with these goods and you’re going to liquidate them in the off-price channel. Going with a supplier is like Russian roulette. Who do you know is going to be in business, and will you get shipped? You really have to look at your supply chain and say, ‘Who’s reliable and who do I think is really going to deliver on those future orders?’”
Relich listed that uncertainty as a major concern for PSEB, considering its suppliers also count many other retailers within the apparel space among their clients. With so many retailers cancelling seasonal orders, supply chain vendors are now host to excess raw materials and inventory that they’re struggling to sell.
“Part of our challenge is going to be identifying who is going to be the last man standing,” Relich said.
PSEB’s plight mirrors what’s playing out across brick-and-mortar apparel retail, which has largely shut down in the wake of the coronavirus outbreak. For one, because “inventory equals cash flow,” driving e-commerce and digital sales has been the sole option to keep the business afloat, Relich said.
As retailers cancelled summer orders, stores are stuck carrying inventory that is going to age quickly. PacSun is controlling expenses and converting that inventory into sales by introducing buy online, pick up in store (BOPIS) and reorganizing the role of store managers so they can ship e-commerce orders from store, where as many as 45 percent of PSEB’s digital orders are now fulfilled.
“The store manager comes in and they pack orders all day, and even when the stores close, they have access to the store and FedEx picks up the orders,” Relich said. “This has enabled us to leverage that inventory. We’ve also taken stores in proximity and we have a store manager going from one store in the morning to ship goods, to going to another store in the afternoon and ship goods. This way we can balance the inventory across the store chain without having to drive a whole lot more expense.”
Bhasin noted that the question of how to do more with less has been applied across retail clients of Newmine, a provider of retail commerce optimization and returns reduction solutions, primarily due to the number of furloughs and layoffs across the industry in both stores and distribution centers.
Moving inventory without driving up operational costs is going to be a major challenge throughout the pandemic and was the chief driver of the decision to move store managers rather than merchandise.
“We want to look at what the net profitability of goods is,” Relich said. “Now knowing that, given the cash that we have, we want to be sure to invest it in the most profitable place, and where we make the most profit, we have the fewest returns. We want to make those bets on the most profitable vendors.”
At the end of the day, profitability is the metric above all else that retailers have to prioritize if they plan to remain competitive in the apparel industry, both presenters agreed. But retailers can’t be reliant on estimates and must analyze their data instead.
“If you look at a granular level of what products and categories are really being sold, and you can get that data in real time, that’s what retailers need to focus on,” Bhasin said. “You have to be flexible at this point in time. This is when you’ll see a lot of retailers really trying to look at their analytical systems and ask whether they are helping them keep their business going in a time of crisis. It’s really about the data. You can drive top-line sales through the website or drive customers to the store, but at the end of the day it’s all about the unit economics and product profitability.”
While more retailers implemented free or loose returns policies such as extended return windows as a competitive tool as the economy improved and Amazon set industry-wide standards, Relich predicts retailers are going to have to rein the lenient standards back in. COVID-19 and the uncertainty regarding package safety are already convincing retailers to adopt “zero touch” returns, but given the lack of revenue coming into stores, Relich believes the idea is dangerous for the operations side of the business.
“When a customer returns a garment, we don’t know enough if it’s infected, and I don’t think there’s enough science to know how long the virus would last on certain surfaces,” Relich said. “So we’re talking about a situation where a customer can put merchandise in a bin, and we give them their money back without touching it. But do we waste 72 hours before we put that bin back in a physical location? When you think about it, it hurts the cash flow and operationally it’s very difficult. The way I look at it, we need to limit returns. A lot of retailers who are going to be hurt financially from this crisis will adopt similar policies.”