By Suzanne Kapner
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 21, 2020).
Clothing retailers are sitting on tens of billions of dollars of
unsold merchandise, and the usual methods for clearing it out
aren't working while the coronavirus keeps most U.S. stores
closed.
Retailers are discounting heavily on their websites, but
consumers aren't rushing to buy spring clothes. Off-price chains
like T.J. Maxx that would normally snap up the excess are also
closed. Liquidators, often a last resort, are already saddled with
goods from bankrupt retailers that have halted their
going-out-of-business sales.
"This is not like wine that gets better with age," Manny
Chirico, the chief executive of Calvin Klein and Tommy Hilfiger
parent PVH Corp., said on a conference call earlier this month.
"Your inventory gets worse."
Some companies are packing away goods with the intent of selling
them next year, a process known as hoteling. But this can be costly
and doesn't work for fashion items that go out of style, executives
say.
Saks Fifth Avenue ran a one-day flash sale last week with spring
dresses at up to 70% off. Nordstrom Inc. is offering up to 40% off
certain styles. J.Crew Group Inc. is offering up to 60% off spring
styles, and the Gap brand is selling everything for 60% off.
"It's Black Friday in April," said Prashant Agrawal, chief
executive of Impact Analytics, which tracked online prices in April
for 400 items and compared them with prices on the day after
Thanksgiving, when the holiday season kicks off with big
promotions. Two-thirds of the items, mostly apparel but also shoes
and jewelry, were selling at Black Friday prices or below, Mr.
Agrawal said.
Despite the temptation of deals, homebound shoppers still aren't
spending on apparel and footwear. Online sales for the category
have declined each week since March 9, including a 20% drop in the
week ended April 6, compared with the same period a year earlier,
according to Rakuten Intelligence, which tracks electronic
receipts.
That means retailers will have to find other ways to get rid of
unsold merchandise, and convert those goods into much-needed cash.
Many chains have drawn down credit lines and furloughed workers
since March. J.C. Penney Co. and Neiman Marcus Group Inc. have
skipped April interest payments, signs of deep distress.
The first stop is normally off-price chains like T.J. Maxx,
which is owned by TJX Cos.; Ross Stores Inc.; and Burlington Stores
Inc. But these chains, which are sitting on their own unsold goods
while their stores remain closed, aren't in a position to pick up
the excess at the moment. T.J. Maxx has closed its website during
the pandemic, and Ross Stores doesn't sell online. Burlington
stopped selling online last month, part of a plan to permanently
exit e-commerce, according to a spokeswoman.
"No one is out there buying huge lots of inventory right now
because everyone's stores are closed," said Adam Freede, chief
executive of MadaLuxe Group, a distributor and retailer of luxury
goods. "No one has a sense of the pricing, because you don't know
where the floor will be."
In normal times, apparel companies typically recover the full
cost of goods, which includes manufacturing, shipping, warehousing
and duties, when unloading inventory to large off-price chains,
according to industry executives. They might recover a third to
half of costs with a jobber, a middleman who resells the goods to
smaller regional off-price chains. The recovery rate with
liquidators who run closeout sales is around 10%, the executives
said. Recovery rates could be much lower in the current
environment, they added.
"It will be a bloodbath," Cowen Inc. analyst John Kernan said.
"There will be old inventory everywhere."
Shipping items overseas, another common method of disposal,
isn't an option because the coronavirus pandemic has shut stores
around the world, executives said. One U.S. company considered
shipping unsold luggage overseas so it could claw back the 40% duty
it paid on the products -- the result of U.S. tariffs on
Chinese-made goods -- but determined the freight was too costly,
according to a person familiar with the situation.
Luxury brands tend to take back their goods, rather than see
them widely discounted. In the past, these brands would destroy
unsold items. But environmental groups have criticized the
practice. In 2018, Burberry Group, facing a backlash, said it would
end the practice.
Another option for luxury players is the growing number of
sellers of secondhand goods. The RealReal Inc., a consignment
company that sells preowned luxury items, had a 30% increase in
supply from brands in the six weeks to April 14, compared with the
same period a year earlier, a spokeswoman said.
Donations are also up. Delivering Good, a nonprofit that takes
excess goods from retailers and manufacturers and distributes them
to needy communities, is fielding calls from companies it has never
worked with before, including one that recently donated 1.5 million
units of women's apparel, said Andrea Weiss, the group's
chairwoman.
"We're gearing up for this to be a record year of donations,"
Ms. Weiss said. "Before they come to us, they've tried online
sales, their own outlet stores and off-price retailers. In many
cases, we're the last stop."
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
April 21, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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