Retailers face being left with mountains of unsold spring and summer stock. What can they do with all that excess inventory?
Sitting in empty shops and piling up in distribution centres, excess stock has become a multibillion-pound problem for fashion retail as the coronavirus pandemic continues to decimate trade.
Last week, Next revealed that a “fast and steep” drop in sales has left the business with “a lot more stock” clogging up warehouses than previously anticipated. It warned this could inhibit operations and prevent it from being able to take in new product.
To mitigate the risk, Next has started to use third-party storage facilities and is holding some stock in source countries, at an estimated additional cost of £2m. It has also cancelled £450m of orders.
The industry is facing the largest stock clearance in a century
Chris Griffin, CEO of flash Sale site SecretSales
Primark owner Associated British Foods has written down the value of the chain’s stock by £284m to reflect realistic pricing when stores reopen.
A key question for fashion retailers now is what to do with all that excess inventory.
Cancelling orders and carrying unsold stock over into future seasons is one solution to the stock conundrum. Next has identified £330m worth of spring 20 stock – mostly basic products, such as summer T-shirts and chinos – that can be carried over to next year.
However, retailers are still likely to be left with a glut of seasonal, trend-led product that has a short shelf life, and many fear this will lead to aggressive – and potentially brand-damaging – discounting.
“The industry is facing the largest stock clearance in a century,” warns Chris Griffin, CEO of flash Sale site SecretSales and former director of ecommerce at Superdry.
“The longer the lockdown lasts, the larger the stock issue becomes. Retailers need to find a way of clearing stock that enhances, rather than damages, their brand equity. Constant discounting on your own platform devalues your brand and your full-price stock.It becomes a spiral.
It will be a Sale to remember for consumers, but the questions facing retailers are very difficult
Raffy Kassardjian, founder of Parker Lane Group
“Retailers need to take a strategic approach that spans different geographies and not flood a single international market with product, particularly as this is likely to be an issue that affects several seasons.”
Raffy Kassardjian, founder of Parker Lane Group, which works with retailers to redistribute unsold stock, agrees: “It will be a Sale to remember for consumers, but the questions facing retailers are very difficult. How much stock are you going to be able to shift in a few months when you have missed the peak of the season?
“Warehouses are beginning to fill up with autumn 20 product, putting logistics and warehouse capacity under pressure.”
Selling through off-price channels is one option. A report on the impact of coronavirus on retail by management consultancy McKinsey & Company last month points to the benefits for off-price retailers such as The Outnet, Yoox and McArthurGlen.
The report also argues a new wave of discount digital players will emerge to seize the excess stock opportunity. At the end of April, Chinese ecommerce giant Tmall launched an online outlet, Luxury Soho, which is aimed at premium and luxury brands.
The size of the Chinese market is just vast and there’s a real opportunity there
Sarah Curran-Usher, entrepreneur and a non-executive director at French Connection,
Some brands are also launching their own off-price platforms and flash Sale events to move excess stock. This prevents discounted product sitting side by side with full-price inventory.
Contemporary womenswear brand Ganni, for example, launched a six-day pop-up digital Sale at the end of April offering discounts of up to 70% on 400 items. The brand will donate 20% of profits to UN Women projects that support female health workers on the frontline of the pandemic.
Fellow womenswear label Lazy Oaf has relaunched its “Oaflet” discount channel, where it is offering customers up to 80% off.
Selling unwanted stock in other countries is another avenue. Although coronavirus has hit nations around the globe, some international markets have been less affected or are recovering more quickly than the UK.
Business partners Sarah Curran-Usher, entrepreneur and a non-executive director at French Connection, and Nicola Mathews, a former brand director at Ted Baker and Pentland Brands, are collaborating with John Lau, founder of Chinese commerce specialist Ecargo, on a project to help brands and retailers move unsold stock from the UK into the Chinese market.
“The size of the Chinese market is just vast and there’s a real opportunity there,” explains Curran-Usher.
We teamed up with some other sustainable brands to order some of the abandoned stock
Dea Baker, founder Aqua Rock
“I have been on the other side of the desk as a retailer myself [Curran-Usher was previously managing director at Very’s designer discount channel Very Exclusive and founded My-Wardrobe] and know how big the stock challenge facing retailers is. When moving unsold stock to other countries, retailers have to think carefully about matching the stock to the right retail partner and the right consumer – you don’t want to end up just transferring the problem.”
She adds that in the long term, the pandemic could provide the industry with a valuable opportunity to rethink its approach to stock: “The reality is the industry has not necessarily bought [according] to consumer demand and has been left with excess stock season after season. This could force the industry to look at how to buy more efficiently to reflect the fact that consumers are much more about ‘buy now, wear now’, and to rethink old patterns.”
Mathews adds: “You need to keep that stock moving to be able to pay your teams and your rent. Stock is a huge asset and if you can’t find a way to turn into cash then it becomes a ticking clock.”
Parker Lane Group’s Kassardjian points to opportunities in closer markets: “Some markets have been less affected by the pandemic than others – north African markets, such as Egypt and Tunisia, are easing restrictions, and there’s also been interest in unsold stock from eastern European markets, such as Poland.”
Donating products to good causes is another option for those left with too much stock, argues Ronen Lazar, co-founder and CEO of Inturn – a platform that helps retailers manage their inventory.
Even before the pandemic, some brands were choosing to support charitable causes and move excess stock. Burberry, for example, has donated product to Smart Works, which provides free clothes and training for unemployed women with an upcoming job interview. Boden has donated more than £770,000 of clothing to 15 NHS trusts across the UK.
“Donation is an interesting option,” says Lazar. “These are tough times for everyone, so rather than letting inventory sit and incurring costs to hold it, retailers could donate product to those who really need it. It may not be at the top of retailers’ minds at the moment, because of the current challenges, but the sustainability issue will be even more pronounced coming out of pandemic. Retailers will need to double down on reducing waste.”
Excess stock is providing opportunities for some. Debenhams has been purchasing discounted stock unwanted by other retailers to help fill gaps in its seasonal ranges, although the department store would not confirm whether the stock comes from new or existing suppliers and brand partners.
Some smaller brands are also finding innovative solutions to help mop up excess stock in the market. Sustainable brand Aqua Rock, which usually produces womenswear and accessories made from waste plastic, has created a range of T-shirts made from cancelled stock produced by factories in Bangladesh. All profits will go to charities that support the NHS.
“The yarn we use in our normal product range comes from a supplier in Spain and a supplier in Italy, both of whom have had to temporarily stop operations,” explains founder Dea Baker.
“We teamed up with some other sustainable brands to order some of the abandoned stock – it means that the factories are able to pay workers and it helps us survive what is a very difficult time. We hope that other brands will join us and that we can expand the project, which has had a great reaction from European boutiques now able to resume trading in Germany and the Netherlands.”
Retailers have a relatively short window to sell spring and summer stock in a period where demand is likely to remain low due to the economic impact of the coronavirus pandemic.
Heavy discounting is inevitable, but risks perpetuating the already-vicious cycle of constant promotions in fashion. Retailers should look to the opportunities in off-price and international markets, to clear some of the stock without damaging their brand equity.