NEW YORK — Apparel retailers’ top-line results may depend on the kindness of consumers, but that doesn’t mean they are helpless when its comes to boosting gross margins.
Aided by increasingly sophisticated inventory management tools, retailers kept leaner shelves while also being quicker at getting merchandise out the door, which leads to more margin-building, full-price selling.
An analysis by WWD of retail inventory turns for the first half of the year showed higher average gross margin rates on improved average inventory turns. Retailers such as J. Crew, Nordstrom and Neiman Marcus were some of the companies that delivered substantial gross margin rate gains during the period.
In the WWD analysis, the department store channel, on average, turned over its entire inventory 4.7 days faster and enjoyed a 106 basis-point expansion in gross margin. In the specialty channel, inventories moved faster by 3.7 days, while margin improved 222 basis points. Among the discounters and mass merchants, inventories turned on average 2.5 days faster and gross margin expanded 83 basis points.
It’s noteworthy that holding or advancing the gross margin line — the very foundation of a company’s cost structure — is especially critical now that record oil prices and economic uncertainty have made future revenues more difficult to plan.
“In light of a potential slower pace of consumer spending,” said Steve Neimeth, a portfolio manager at AIG SunAmerica Mutual Funds, “it is ever more important today to get your inventory light and capture the most margin in your product.”
Although improved consumer confidence levels this year versus depressed year-ago levels gave some succor to gross margins over 2003, “it doesn’t seem that revenues are up much more than last year, which means the consumer isn’t spending more,” Neimeth said.
What contributed to gross margin improvements in the first half of this year was a keen focus on inventory management, which made inventory turns more frequent. At the same time, retailers were more disciplined in merchandising their stores, keeping fewer goods on shelves at any given time. Consequently, consumers no longer have reason to believe that a desired sweater, for example, will be on sale in two weeks; instead, they are pushed into buying the item sooner rather than later.
A Stella McCartney sketch of a custom dress made from protein-based silk in partnership with biotech lab Bolt Threads. The dress will be displayed at The Museum of Modern Art's upcoming design exhibition, "Items: Is Fashion Modern?"