Apparel retailers are gearing up for one of the busiest shopping seasons of the year, but this time, they’re doing it with significantly slimmer inventories. This shift is driven by various factors, including disruptions in the supply chain due to the ongoing pandemic and challenges in sourcing raw materials.
Abercrombie & Fitch, for instance, revealed in its recent earnings report in late August that it had reduced its inventory by approximately 30% compared to the previous year. G-III Apparel Group, the owner of brands like DKNY and Karl Lagerfeld, also reported a 23% reduction in year-over-year inventories. Guess has joined the trend, announcing its plans to trim inventory by 10% this year.
The initial buildup of inventory by retailers was a response to supply chain disruptions and the fear of running out of stock during the holiday seasons of 2020 and 2021. However, this strategy backfired as supply chain delays persisted, and consumer demand took a hit. As a result, apparel retailers found themselves burdened with excess inventory. Consequently, they have been diligently working to reduce their stock levels ever since. Industry analysts anticipate the apparel sector preparing for fewer discounts this year and bracing for a slower holiday sales season.
The improved shipping times associated with leaner inventories bring several advantages. Retailers can achieve better profit margins and reduce the need for deep discounts. According to Sky Canaves, a senior analyst at Insider Intelligence, constant markdowns can condition consumers to wait for sales or resist paying full price. Retailers are willing to accept the risk of potential sales losses due to out-of-stock items to safeguard their profit margins.
For apparel retailers like Abercrombie and Kohl’s, maintaining lower stock levels also offers the advantage of agility in responding to emerging fashion trends and sourcing highly sought-after products. Kohl’s, for example, reduced its inventory by 14% in the recent quarter and expressed its commitment to optimizing its apparel assortment to align with customer preferences. Abercrombie executives have highlighted their sourcing team’s ability to swiftly respond to demand signals, emphasizing their agility in adapting to what’s working in the market.
In response, apparel retailers are strategically reducing their inventory levels in response to evolving market dynamics and challenges in the supply chain. This shift allows them to enhance profit margins, reduce the reliance on heavy discounts, and stay agile in a rapidly changing fashion landscape.