The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Tanya Taylor entered summer with heaps of her signature floral dresses and a sense of unease.
With weddings back in full swing, demand was up. But the stock market had just plunged, and with the national mood grim, the New York City-based designer anticipated that shoppers wouldn’t be in the mood for bright, breezy looks for long — that come August, her company might end up with too much unsold merchandise, which would need to be marked down.
Rather than waiting to see how the season played out, Taylor planned a pop-up shop in Charleston, South Carolina, a relatively new market for the label. Her team pulled together an event in two weeks. Within three days of selling, Taylor sold double the amount she had projected — all at full price.
“It’s our job to find the customer that matches inventory,” Taylor said. “That’s how we’ve felt less anxiety and more control.”
From independent designers to global brands, retailers are finding themselves with an inventory problem this summer. During the pandemic, many thought they had kicked their habit of ordering too much merchandise and relying on end-of-season sales to clear out warehouses and stores. But a combination of shipping delays and misreading the post-pandemic consumer has caused stockpiles to come roaring back.
On average, large publicly traded apparel retailers’ inventory levels were 27 percent higher in June than a year prior, according to data from BlueFin Research Partners. For some, the situation is even more extreme. In its most recent earnings report, women’s apparel retailer Aritzia said inventories were more than 80 percent higher than last year.
Discounting has returned with a vengeance. Across men’s, women’s and children’s apparel in the UK, more than 71 percent of products were marked down as of July 17, Edited data shows. That’s compared to 22 percent last year and 47 percent in 2019. In the US, 60 percent of products were marked down, versus 48 percent in 2019.
“Everybody was thinking they were doing themselves a favour by getting ahead of supply chain [issues],” said BlueFin analyst Rebecca Duval. “But as we turned the corner into 2022, consumer discretionary dropped significantly and so you had a juxtaposition of demand dropping but inventories that support a much higher sales plan.”
For many companies, getting back to the fat profit margins of 2021 — when their biggest problem was finding enough clothes to sell — is already out of reach. Now, the goal is to head off a glut of unsold clothes, whether it’s with sales or more creative measures, and once again recalibrate orders with manufacturers to try to avoid a repeat this winter.
Early in the pandemic, the fashion industry saw an opportunity.
For more than a decade, brands and retailers had been locked in a cycle of ordering too much each season and then competing with each other to offer the steepest discounts. Despite near-constant markdowns, some brands were throwing away mountains of clothing or stashing merchandise away in warehouses.
During lockdowns in 2020, when stores shuttered and entire populations were isolated at home, retailers had no choice but to get rid of unsold products however they could. When they looked ahead to future assortments, they planned conservatively. Covid-related factory closures worldwide also forced many companies to cut back on orders.
Fashion retailers thrived in 2021, using low inventories and booming demand to raise prices and rein in discounting. Many talked about it as a permanent shift toward a more disciplined approach to pricing.
Some brands have kept their promise — Tapestry’s on-hand inventory level is up in the low single digits compared to last year, it said in a recent earnings call, but the company has raised handbag prices by 20 percent.
But many are finding themselves sliding back to where they were in 2019. The reason, experts say, is twofold. When fashion companies were planning their 2022 offerings in the fall of last year, many relied on that year’s sky-high sales as a baseline for their demand forecasts. That proved overly optimistic. When demand slowed in the spring of 2022, products began to pile up.
“[Retailers] felt so desperate to get products, and then maybe got overexcited,” said designer Batsheva Hay. “And then Omicron hit, and it was like, ‘Whoa, what do we do?’”
Hay added she was surprised when some of her wholesale clients cancelled orders for her namesake brand earlier this year. Luckily, they’ve yet to do it again since.
All the while, supply-chain disruptions meant that retailers had no way of guaranteeing that products would arrive on time. Some retailers are just now receiving items slated for spring. Companies responded by asking for deliveries as soon as possible, meaning some retailers are now holding delayed spring merchandise, in-season summer clothes plus their fall inventories.
The good news is that consumer demand hasn’t fallen off a cliff, despite increasingly dire economic forecasts. In the first six months of 2022, US clothing sales were up 10 percent compared to the same period in 2021, according to Census data. That leaves retailers with more tools to work with than the last few times there was a mismatch between inventories and demand.
“We’re not seeing the deep reduction in consumer demand that we were in 2009 or the early part of the pandemic,” said Eric Fisch, national sector head of retail and apparel at HSBC’s corporate banking division. “In the near future, there’ll be markdowns, but at the start of next year, maybe there will be equilibrium.”
When brands have leftover product, their first instinct is to mark it down or sell it to off-price retailers. This generally removes the inventory problem, but at the expense of margins.
Discounts are sometimes the best option: they allow companies to quickly move on from last season’s issues and plan future orders with a relatively clean slate. But with patience and creativity, taking the margin hit doesn’t have to be the only option, as Taylor’s pop-up shows.
Companies can save extra products for the following year, for instance. Old Navy has asked its vendors to hold millions of units for up to three months, according to Duval.
Fisch said that moving manufacturing closer to North America could result in clearer inventory planning because it would reduce the lead time between ordering clothes and when they arrive in stores from overseas factories. But domestic manufacturing is far pricier than production in China or Bangladesh.
“It’s not that they didn’t plan well — nothing hit how they planned it,” said Nikki Baird, vice president of strategy at Aptos, a retail services firm.
Some retailers have already cut their orders for the future quarters. American Eagle Outfitters as well as Abercrombie & Fitch have reduced fourth-quarter order sizes by 10 percent or more, according to Duval’s research.
Reducing product volume is the best way to avoid excess inventory, but it’s not always possible. In that case, keeping some products for future seasons may be the next best option, experts say. That works best with core pieces in evergreen silhouettes.
“If you have the stomach to really wait, to sit on the product and use your capital to not provide discounts,” said Fisch. “The problem is that if every other brand is doing markdowns, it makes it that much more difficult.”
And if markdowns are inevitable, aim for a “trickle, not a waterfall,” he advised.
Tanya Taylor’s Charleston sale wasn’t free for the brand, which had to organise the event in a new market and arrange for food and drinks for shoppers. But the bump in full-priced sales made the upfront costs worth it, and the pop-up was successful as a brand-building strategy as well, Taylor said.
She added she’s done similar off-the-cuff shopping events for some special customers. In one case, a woman DM’ed the brand on Instagram and asked if she could receive some inventory to host a shopping party with her friends. Taylor agreed, and the event turned out to be very profitable.
“It almost made her, an ambassador, become a retailer herself,” Taylor said. “It’s all about making sure you support inventory-sell-through through the [strength] of the brand.”
Editor’s note: This article was amended on 20 July, 2022. A previous version stated Nikki Baird is the VP of retail innovation at Aptos instead of VP of strategy.