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Clothing retailers launch price war to clear excess inventory

U.S. apparel retailers are preparing big price cuts to clear inventory ahead of the important holiday season.

Clothing stores as low-income shoppers buy essentials like food and rent first, while wealthy consumers replace pandemic leisurewear with tailored office outfits and wardrobes for going out. struggles with excess inventory and fragmented spending habits.

“I hesitate to call this a catastrophe, but in terms of discounts and markdowns, it will be ugly,” Urban Outfitters CEO Richard Hein said on the company’s earnings call last month. Retailers are facing too many products “across the board,” he warned.

Retail sales of apparel and miscellaneous goods stores remained flat almost flat Over the past year, according to Census Bureau data. That’s despite apparel prices rising 5.1% in August from a year earlier, according to data from the U.S. Bureau of Labor Statistics.

But inflation is starting to affect demand, with 85% of American adults saying rising prices have changed the way they shop, with consumers looking for deals, discounts, coupons or simply refraining from shopping. That’s how it is, says a new report from the poll group Morning Consult. .

This puts retailers in a tough spot. Supply chain disruptions delayed the arrival of orders from last year’s holiday season, leaving many companies with more inventory than necessary. This year, many companies have placed orders ahead of the busiest sales season.

“Even after adjusting retailers, we still have too much inventory. [that have] We received the item earlier than usual,” said UBS retail analyst Jay Sole.

Many retailers reported a surge in inventory in the second quarter. Foot Locker, Kohl’s and Gap reported inventory increases of 52%, 48% and 37% respectively.

“Historically, retailers have discounted when inventories were low,” said Simeon Siegel, managing director of equity research at BMO Capital Markets. There was no historical version for the year 2022.”

Some retailers are choosing to stock more after running out of stock last year. Lululemon’s inventory increased by 85% year-over-year, while comparable sales increased by 23%. Some people have to aggressively discount.

Abercrombie brand Hollister recently promoted a website that sells jeans for $20 a pair. Gap flew multiple offers across its website, including an extra 50% off items already on sale.

American Eagle has put away its surplus spring/summer merchandise by relying on $30 million in profitable sales. “This is clearly an unprecedented time in the retail industry,” CEO Jay Schottenstein said on the company’s latest earnings call.

As the holiday season of Halloween and New Year approaches, there is a huge divide between discount and luxury brands.

Burlington Stores Chief Executive Michael O’Sullivan said low-income shoppers were struggling with inflation. “The current level of promotional activity is not going to last forever. But while it does, it will create a very big headwind for us,” he said.

Urban Outfitters, which includes high-end Anthropologie and Free People in its brands, says the brand’s customer behavior is fragmented, with “richness being a differentiator.” Younger, lower-income customers “spend much more cautiously on discretionary items and often wait for promotions before making a purchase,” Hein said.

The divergence is clear because “luxury in general is doing very well,” said Jessica Ramirez, senior research analyst at Jane Hari & Associates. Low-end brands will see more “consumer shopping setbacks,” she said.

Gina Drosos, CEO of jewelery retailer Signet, told the FT that the divide between consumer fortunes was evident in the difference in demand for “valuable” and luxury goods. $250 or less, second $500 or less, third $1,000 or less, and the highest is $10,000 or more.”

With retailers such as Gap, Kohl’s and Lands’ End turning to ‘pack and hold’ strategies, this year’s inventory problems already seem likely to affect next year’s results. later date.

Lands’ End CEO Jerome Griffith said he could carry over some basic spring/summer items, but for more fashion-oriented items, “I’d like to take advantage of the promotional activities there.”

Apparel stocks underperformed the broader market. So far this year, American Eagle stock is down about 57%, Abercrombie is down almost 56%, Gap is down more than 48% of his and Urban His Outfitters is down more than 26% of his. . The S&P 500 is down almost 19% so far in 2022.

UBS’s Sole said it will be a tough year as retailers try to keep inventory in line with sales growth. “As it stands, the retailer will use the rest of his 2022 to try to set him up for a more normal 2023,” he said.

https://www.ft.com/content/604d6556-c56f-4081-a210-e7abcd6f415c Clothing retailers launch price war to clear excess inventory

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