Full-price, me too, off-price clothing retailers with take-out inventory strategy

August 29, 2022

Gap, Express and Kohl’s are among the retailers preparing to use packaged sales to reduce the markdown blow from late holiday deliveries.

The practice is more commonly used by off-prices, such as TJX and Nordstrom Rack.

At Gap analyst call last week, Katrina O’Connell, Gap’s executive vice president and chief financial officer, said the strategy allows Gap to use cash to optimize margins in the short term and benefit from working capital the following year. as a packaway inventory decreases revenue.

“We are confident that we will be able to incorporate our ‘pack and hold’ inventory into future assortments, as the majority of merchandise is carefully selected seasonal staples that we regularly use to complement our assortments. Examples of these more timeless styles are basic shorts or short-sleeved t-shirts and tanks,” Ms O’Connell said.

Kohl’s inventory at the end of the second quarter included $82 million in goods packed from end-of-vacation receipts for basic items, such as sleepwear and fleeces. Jill Timm, chief financial officer, said on Kohl’s earnings call“This merchandise will be installed in the third quarter before the holiday season.”

On the first quarter of Express conference callTim Baxter, CEO, says retail is all about packages products that had an extended shelf life, repositioning some for Express’s release business. “We packaged and stored full runs of this product, and there had to be two things that were true about packaging and storing the product. First, it had to have a high sell rate for products that were distributed in stores and on the website. And number two, it had to fit into the assortment architecture for EFO [Express Factory Outlet] Next year. And we’ve been very clear with the teams on both of those, and that’s why we’re confident we can sell that at full price next year,” he said.

Five Below, however, is now focusing on markdowns to eliminate excess inventory after being “overinvested” in packaways a few years ago. Joel Anderson, CEO, said during the first quarter of Five Below call“I think it worked very well when we were just a small regional player. But as you go national, it becomes a really complex thing.

DISCUSSION QUESTIONS: Has packaway become a more standard and less risky practice for full-price retailers looking to maximize destocking? What advice would you have for limiting losses from holding packaged inventory?

Braintrust

“Analyzing the trade-off between discounting items today and packing in hopes of higher sale prices is key to making the best decisions.”

“Newsflash: If your merchandise is so generic it can be packed, you’re in BIG trouble.”

“Packaway is a targeted strategy by off-price and an ‘oops strategy’ by full-price retailers.”

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