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Q3 Hot Takes: Off-Price Friend or Foe, Making Holiday Happen & Turning Lemons Into Lemonade

Beyond profits and losses, the third quarter earnings calls revealed some key strategies among the apparel retail community. With off-price as one of the few brights spots today, the C-suite had plenty to say about what they consider to the be the best tactic for feeding that beast. Retail execs also talked about making lemonade out of other people’s lemons as doors close at a rapid clip. An endlessly recurring topic for sourcing is focus or diversify, and this month, the debate continued. Finally, heading into the fourth quarter, talk naturally turned to gifts.

Off-Price tug of war

Morris Golffarb of G-III Apparel Group; Tom Kingsbury of Burlington; and Robert Madore of American Eagle discussed product flow from full price to off-price from their perspectives on opposite ends of supply and demand.

“Clearly, as our inventory in categories like outerwear and cold weather type categories depletes, there’s less of an opportunity to fill some of those orders that are in demand. And what is actually very good for us is that the off-price channel does not have an opportunity to buy industry product and pack it away for the coming year. So, they’re open to buy for calendar 2018, should be more significant than it was in 2017. So, we see a unique position for categories that have sold through incredibly well. And the door count in the off-price channel, as we all read, is increasing. So, between the door count, the lack of appropriate inventory, I think that bodes well for who some of us are and how we service the off price channel. And the department store as well benefits because there is less promotional product to open the season with in the new off-price channel. So, I think I see in core logic, I would tell you that it feels that it’s positioned well for the future.”

—Morris Golffarb, CEO and chairman of G-III Apparel Group

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“Pack and hold as a percent of our total inventory was 15% versus 12% a year ago as we’re able to capitalize on significant buying opportunities, particularly in the better and best categories.

In terms of product availability, supply has never been better… We are finding that brands would rather clear product by selling to us and let us invisibly sell their clearance through our stores rather than run clearance sales on their websites that might damage their brand integrity.”

—Tom Kingsbury, CEO and chairman of Burlington

“We converted five outlet stores to clearance outlet stores only, so they don’t have made-for-outlet product. They are literally clearing prior season’s inventory. What we found in early tests with that change is that the average unit retail that we’re realizing through the liquidation in our own channel is about 100% better than what we had done through a third party jobber, so we feel like there’s an opportunity to not only continue to test within those five stores but possibly expand it to an additional five stores, and we’re going to read and react a little longer before we go ahead and do that.”

—Robert Madore, EVP and CFO of American Eagle


Opposing sourcing strategies

Brian Lynch discussed how Ascena Retail Group  found success honing in on specific sourcing partners while David Kornberg of Express, shared why his company is finally willing to throw the net wider.

“Over the past year, we have made substantial changes to our global merchandise sourcing network to drive both innovation and additional cost efficiency. We have realized our vendor base and developed deeper strategic partnerships concentrating more volume into a smaller more capable supply base. This work has been completed by new technology that enables upstream visibility into our supply chain costs, starting at the raw materials level. We realized $6 million in raw material cost savings in the first quarter, and we believe there is meaningful incremental opportunity in the merchandise sourcing area.”

—Brian Lynch, COO of Ascena Retail Group

“We have very strong relationships with our suppliers. And we’ve learned a lot over the last few years through the growth of the Express Factory Outlet business in terms of other countries of origin, other places where we can manufacture. That has clearly benefited us this year. It is still ongoing work. We’re constantly looking at ways we can speed up production, ways we can improve our product costs and I see that continuing into next year and beyond. We had concerns in the past in terms of going into some of the countries that we’re working with but a lot of progress has been made in those countries, and we feel very comfortable with it and what we we’ve seen this year is that there’s been no determent to the quality of the products we’ve delivered and there’s been no delay in the products we’ve delivered into our stores.”

—David Kornberg, CEO of Express

Picking up the pieces

Nancy Walsh of The Bon-Ton and Jane Elfers of The Children’s Place shared how their fates improved after their competitors have left exited the market.

“As we’ve talked about in previous calls, the doors that we’re overlapping with where Macy’s closed, 2016, 2017, continue to perform very, very strongly.”

—Nancy Walsh, EVP and CFO of The Bon-Ton Stores

“The stores where we were co-located with Gymboree outperformed the balance of the fleet for the third quarter, in spite of an aggressive closing store promotional cadence from Gymboree. Our due diligence suggests that the end of Q3 approximately 228 of 330 liquidating stores are now permanently closed, and the balance will close at the end of the fourth quarter. Of the 228 closed stores, we were co-located in 135 of them. It’s still early in the quarter, but these 135 stores continue to outperform the fleet.”

—Jane Elfers, CEO of The Children’s Place

Gifting is all about timing

Having the product and getting it in early is the shared strategy for both American Eagle’s Chad Kessler and Burlington’s Tom Kingsbury

“We’ve moved up our new deliveries. Our spring trans deliveries we’re setting earlier this year than last year. Aerie set, I think yesterday, and AE is in the process of setting this week. We found last year that that drives customer enthusiasm for new product as well as stronger margins. We’ve also worked to expand our gift-giving categories and make sure that we have a really strong assortment of stocking stuffers priced primarily under $10. We’ve changed our marketing to be really focused both on three things, or two things primarily: Jeans, really taking advantage of our leadership position in jeans and making jeans the No. 1 gift. And then two, trying to be as explicit as possible to both the gift-giver and the gift receiver that American Eagle is the gift destination for 2017.”

—Chad Kessler, global brand president for American Eagle

“We view the gift business as a key strategic year-round sales growth driver for the company as it is a business that should drive traffic and conversion as well as significantly help us de-weather our business, particularly in the fourth quarter.

Something we did a little differently this year is deliver more receipts in October in order to set up gifts in all doors in the beginning of November. We just thought we needed more supply as we went into the fourth quarter, building products earlier than we did last year. And we really feel that overall, this will benefit us for the fourth quarter.”

—Tom Kingsbury, chairman and CEO of Burlington