Life After the Pandemic – How Do We Get Our “Stuff”?
George Carlin centered one of his most famous acts around the concept of “stuff”. He famously said, “That’s all you need in life, a little place for your stuff.” We have built an entire retail economy around this concept, and we plan for months, if not years, in advance to keep the flow of “stuff” going. We are now faced with a difficult conundrum. The flow of “stuff” has been halted by COVID-19.
So, what does that mean and what do we do about it?
The Coronavirus pandemic has shut down most brick-and-mortar retailers across North America and around the world. Retailers have been forced to make the tough decision to temporarily close their stores to prevent further spread of the disease and to keep themselves and their customers safe. This has retailers scrambling, as they now make critical decisions to weather the storm and prepare for the day when they are permitted to once again open their doors. The vast number of “unknowns”, and the resulting ever-changing timeline has retailers guessing at when that grand reopening may be.
While American consumers are relatively optimistic about the economy their income, spending, and purchasing behavior are changing dramatically. According to The State of Fashion 2020 Coronavirus Update, posted on the Business of Fashion website, more than 40% of consumers expect to decrease total household spending and 65% of consumers expect to decrease their spending on apparel over the next two weeks. Early numbers from China shows that apparel sales are down 50 to 60 percent in the first month after stores reopened.
This decrease in spending along with very large quantities of unsold inventory is creating a unique retail challenge. Existing seasonal inventory will be difficult to offload as the new summer and fall styles may already be purchased and on the way.
As we conduct surveys and research it seems that all retailers will be impacted but the level of impact may vary greatly across retail channels:
- Department stores and mid-market mall-based retailers may be hit the hardest, as shoppers closely monitor their spending and look for value and low-price fashion. These retailers are particularly vulnerable in this crisis because of the high inventory risk they carry. The more products carried; the more cash tied up in inventory.
- High end luxury retail may see their customers return more quickly to paying full price but even they will have decisions to make on what to do with unsold, outdated products.
- Off-price retailers such as Burlington Stores, Ross Stores, and TJ Maxx may be in the best position as they will continue to be appealing as customers look for value and bargain fashion. Off-price retailers tend to carry less inventory and have strategies in place to turn it quickly, presenting an opportunity to buy up this merchandise which may drive even more customer traffic into their stores.
There are many techniques and strategies that retailers will employ to reduce and even offload this excess inventory. The inventory reduction process should have already started, and it will continue well into 2021.
Some of these recommended tactics include:
- Explore delaying or cancelling existing orders with vendors.
- Review what portion of Summer and Fall 2020 inventory to accept from vendors.
- Review what will be needed for Spring and Summer 2021 and what merchandise may be able to be cut based on merchandise that may be salvaged through pack and hold strategies.
- Seasonless stock like intimates and some accessories are less exposed and may be able to be repurposed later in the year.
Companies are already employing these tactics. Supply Chain Dive posted an article where Levi’s CFO Harmit Singh says the company has “aggressively cut purchases and cancelled orders for the second half of 2020”. They are also moving some e-commerce orders through their ship-from-store program to clear some of this excess store inventory.
For many retail players, repurposing existing stock for new seasons will be a viable option. In a recent Retail Dive post, PVH (the company which owns brands including Calvin Klein and Tommy Hilfiger) CEO Emanuel Chirico explains how they may “pack and hold” at least some of its 2020 spring and summer inventory for next season, in order to preserve its ability to sell at full price or close to it. The company is wary of having to sell inventory to off-price retail partners at a steep discount…This will likely mean reduced orders for the 2021 season.
Many companies will turn to steep discounting either within their own retail stores or selling the merchandise to outside companies to clear inventory for the rest of the year.
Many retail brands face challenges like:
- Space constraints impacting how long they can hold onto aged merchandise as the new merchandise continues to arrive
- Upholding their brand reputation and image requiring them to avoid deep discounting
It may be for those reasons that choices are made to discount merchandise in a controlled way through off-price channels. Consumers can anticipate it to be a strong buyer’s market across all of retail but especially within the off-price market.
The time to focus and strategize about what the business will look like once the restrictions are lifted is now. Inventory is just one big challenge among many challenges that retailers are facing. It is important to use this time wisely to try and emerge stronger and more energized to take your brand to the next level.
Let’s get people their “stuff”!