Stringent inventory control may be the mantra for most apparel retailers, but there is still plenty of fat to trim.
Of 28 specialty retailers tracked by WWD, 15 registered decreases in inventory levels during the first quarter, while 13 actually increased their levels from the first quarter in 2007.
However, according to research conducted by the Telsey Advisory Group, six of the companies — Chico's FAS, Gymboree, Hot Topic, Tween Brands, TJX Cos. and Urban Outfitters — were up when measured by total stock, but down when the figures were measured on a per-square-foot basis.
While many retailers still have a long way to go in their inventory management strategies, total inventory increases are in part due to the opening of new stores and growth in direct sales.
At the Piper Jaffray Consumer Conference held in New York last week, Chico's said it had been working over the past six months to try to manage inventory investments and lower them to be more in line with current trends. Yet first-quarter inventories rose 14 percent from a year ago. On a square-foot basis they were down 4 percent.
"While [the total] number does include new store growth, with comps trending down significantly and inventories down on a per-square-foot basis only modestly, it seems clear that more cuts are needed," said Thomas Filandro, retail analyst at Susquehanna Financial Group.
"Many retailers will acknowledge they have excess amounts for the first half and will have it lower for the third and fourth quarters," said Mark Montagna, retail analyst at C.L. King & Associates. "By the end of the fourth quarter levels may not come down too dramatically since many flushed out clearance at the end of January 2008."
Even with major inventory cuts, some retailers are in despair as they watch merchandise sit on the shelves, victims of a lack of fashion newness that has reinforced consumers' reluctance to spend given the weak economy.
Despite its 4.6 percent decrease in inventory during the quarter, American Eagle Outfitters Inc. has still had to resort to aggressive markdowns in order to clear merchandise, said Christine Chen, retail analyst at Needham & Co. LLC.Gap Inc. lowered inventories 13.8 percent during the first quarter, improving margins in the process, but contributing to a quarterly comparable-store sales dip of 11 percent. In May, the company's U.S. Gap stores were down 7 percent on a comp basis, Banana Republic slid 5 percent and Old Navy, hardest hit in recent months, was down 25 percent.
Overall, long-term inventory controls are positive, helping retailers to limit their margin vulnerability from clearance selling and build efficiencies that wouldn't be in place if the economy hadn't soured, but they do not help the business bring the consumer back to the mall, Filandro said.
But while consumers may not be taking notice, investors are rewarding retailers that are cutting inventories and penalizing those that are bringing in more product, Chen said.
Inventory reductions will become even more important during the back-to-school season, said Eric Beder, retail analyst at Brean Murray Carret & Co. "With initial fall shipments in less than six weeks, the level of newness will continue to slacken, while the need for price cuts to clear out goods will increase," he said. "We believe most of our universe has continued to aggressively reduce inventory exposure over the past few weeks. These efforts will accelerate even more as June deepens."
This could ease the demand for end-of-season deep discounting. Beder expects clearance levels to be less than last year even with rising unemployment and gas prices.
Analysts predict retailers will continue to cut inventory levels, not only during the second half of the year, but into 2009.
"[Chief executive officers] have no idea what the second half will bring and have no confidence that the consumer will return," Filandro said.
But how does this position stores for a turnaround? Once the consumer starts shopping again, retailers do run the risk of not having enough inventory on hand and could limit their upside sales potential, disappointing Wall Street.
But this scarcity could create demand and more full-price selling and help retailers zero in on the styles that are needed at the stores, said Dana Telsey, president of Telsey Advisory Group.
"Shoppers are more willing to pay for an item at full price if they think it won't still be there the next week," Chen said.Retailers will need to ensure systems are in place to have a fast enough turnaround if this happens. But missing out on sales due to insufficient inventory is hardly a high priority at the moment, as stores struggle with the toughest economic conditions in decades.
"Unless there is a dramatic change in fashion, which is unlikely, retailers can ramp up rather quickly if they see the costumer start to return," Filandro said. "The best situation a retailer can be in at this point is the consumer coming back and not having enough product to suit the demand."
Abercrombie & Fitch
New York & Company
SOURCE: Company reports. All figures but percentages are in dollars.
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews