January 28, 2023

Apparel retailers like Express and Gap that stashed away mountains of unsold basics during the coronavirus pandemic are now slashing prices on clearance items in a last-ditch effort to clear clothing racks.

But the massive discounts they dangle on off-season clothes may not appeal to inflation-weary buyers like 30-year-old Elieth Chaparro.

At the Crabtree Valley Mall in Raleigh, North Carolina, Chaparro, whose goal was to find a discounted winter coat, wasn’t thrilled with the Gap clearance section, where she found spring or summer merchandise, including jeans and crop tops with cartridges priced under $15.99. .

“The fabric looks like it’s been there for a while,” she said, referring to a short-sleeved pink blouse on the rack.

Retailers, including Express Inc and Gap Inc, have been holding onto older merchandise, from last holiday season, in hopes of selling the inventory this fall.

“If you lower the price enough, you’re out of it,” said Eric Beder, CEO of Small Cap Consumer Research.

Retailers’ margins are at risk during the critical holiday shopping season and their efforts to be the go-to location for trendy fashion.

Jessica Ramirez, an analyst at Jane Hali & Associates who conducts regular store checks, has been seeing summer clothes on Gap’s shelves for weeks. Retailers marketing last season’s merchandise is “not a good sign” for profit margins or customer engagement at a time of declining demand for clothing, she said.

“Shoppers are now buying to wear,” Ramirez added, so having items customers want and need immediately is crucial.

Gap declined to comment. An Express spokesperson did not immediately respond to requests for comment.

Demand from shoppers has put pressure on clothing retailers throughout the year, driving up inventories and forcing retailers including Gap, Victoria’s Secret and Kohl’s to lower its prices.

After receiving holiday items late for 2021, retailers also started ordering seasonal items earlier in 2022 to avoid supply chain problems.

Express, which reports third-quarter results on Thursday, saw total inventory increase 29.9 percent year-over-year in the second quarter and 40 percent in the first, after bringing in late Christmas items. Sequin blazers and pants from last holiday season are now in stores, Express told investors in November.

Express on Tuesday offered holiday sales online and some in-store at 30 percent-50 percent off all items, with an additional 50 percent off sale items like cami tops and animal-print maxi dresses. The sales come months after the company said it would offer more promotions to clear inventory.

Since October and over Thanksgiving weekend, deals had increased in both frequency and depth, including from clothing retailers, according to research by Jane Hali & Associates. Some started promotion at higher levels earlier than last year.

General apparel was the most discounted category between Thanksgiving and Cyber ​​Monday, according to data from Salesforce on Tuesday, with discounts averaging about 34 percent.

Margin drain

Gap also warned investors in November that bringing summer items into the fall was a “margin exhaustion,” and now some of those styles are still on Gap’s shelves, according to store checks.

Gap.com posted 60 percent discounts on basic crew-neck T-shirts on Tuesday. The promotion excluded trendy styles such as faux leather pants.

In mid-November, Gap Chief Financial Officer Katrina O’Connell said it expects to enter 2023 with lower inventories, even if it has to cut prices. She said holding on to unsold inventory would “consume cash” in the short term and that the company is focusing on clearing out old merchandise by the new year.

Certainly, getting rid of old clothes by 2023 could help Gap and Express free up space for trendy merchandise that shoppers are willing to buy and will cut costs on storage.

Gap’s clothing inventory for the third quarter ended Oct. 29 was up 12 percent, with 9 percentage points for what Gap executives call “pack and keep” merchandise — stashed “slow-turning” basics, including T-shirts and shorts, those eventually return to the sales floors.

Gap’s profit margin fell to 38.7 percent in the third quarter from 41.9 percent a year earlier, significantly impacted by markdowns. Wall Street expects Gap’s margins to increase in the holiday quarter from 33.66 percent last year to 34.61 percent.

Express margins in the third quarter are expected to fall to 29.7 percent from 33.22 percent a year earlier, according to analyst estimates on Refinitiv.

By Arriana McLymore

Learn more:

Why fashion’s inventory problem is back (and how to fix it)

A combination of shipping delays and a misjudgment of consumer demand has caused products to pile up. Retailers are using a mix of discounts and more creative measures to push them back.

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