DELAWARE, Ohio – While many retailers are overloaded with products they purchased when pickings were thin, the Top 100 Retailers American freight perhaps you feel it more intensely.
On a Nov. 3 call with investors, franchise group Chairman and CEO Brian Kahn noted that the retailer – one of Franchise Group’s subsidiaries – “paid too much for bad inventory” and is now feeling the pinch as it works to correct its range of goods.
Kahn said Franchise Group’s three home furnishing properties — American Freight, Buddy’s Home Furnishings and WS Badcock — have seen product costs rise. However, American Freight’s inventory situation presents a different set of issues, stemming from purchases made when the supply chain was most tight.
“For American Freight, the main difference was when supply was tight, and there was a time when we couldn’t get inventory – the supply chain contracted and wait times were long, and orders were canceled anyway – we bought what we could instead of what we should, and also bought at higher prices,” Kahn said on the call.
“It’s one thing to buy what your customers are used to seeing and earning margins. It’s another thing when you buy something. We are basically unraveling that,” he continued. “We can either dribble it over time and try to maintain normal margins – and that’s what a lot of people do – or we can rip the bandage off, move inventory and reset the deck.
“Anything on the floor that shouldn’t be there and doesn’t run takes up space from the right (piece) which will move three to four times. He’s just sitting there waiting to be written off. It is a sunk cost. We have to move on, and we do that as vigorously as we do. The right inventory at the right price will allow our salespeople to serve our customers. »
Kahn said that as the merchandise pipeline slowed, the retailer could have run skinny and waited, but officials felt it was best to put the merchandise on the floor.
“The traders’ job was to get the best deal possible; there were no better offers. Their job was to buy inventory and move it around. It wasn’t a 99% belief bet, but we did it anyway,” he said. “We were also very lucky. It’s disappointing, but it has no impact on how I see the future of American Freight.
As the the holiday season is approachingKahn said FRG officials see this as the perfect time to continue to reduce merchandise to properly rebalance the assortment.
“We will run to get through. We happen to be approaching the holiday season, and we usually wouldn’t have big holiday season promotions in home furnishings, but we will,” Kahn said. “We are going to do discounts and we are going to incentivize our sellers to move the merchandise that we have now. Everything we sell now, we can replace with lower cost items.
Kahn said he foresees good things for American Freight with an updated and right-sized assortment under new management. Peter Corsa, CEO Home Furnishings Division. “I continue to believe that American Freight will be the most valuable company of the six brands we own today in terms of annual free cash flow and terminal value for Franchise Group,” he said.