The Big Apparel Brands Bulk Up
I’ve been preaching the virtues of maintaining lean inventories for a long time. One of the keys to earning full retails and margins is to turn over merchandise quickly. That’s the essence of being a trader, a merchant. Merchandise that turns quickly earns cachet with consumers. It becomes more highly value because it’s perceived to be more scarce. When merchandise turns more quickly, the consumer in a woman’s boutique doesn’t see the same blouse three visits in a row. She sees it once. She gets one shot at it. One and done.
So a recent story on the Wall Street Journal’s website, “Apparel Maker’s Inventories Pose Risks”, caught my attention. Inventories at several leading branded apparel companies have jumped pretty significantly this year, compared to last year. Inventories at VF Corp, maker of North Face among other brands, were up 24%. Nike was up 18%, Timberland 36%. And that was just the beginning of the list.
Do these folks really think they’re going to run sales increases on this scale??? Do they really have advanced orders from their retail customers to justify this investment? Did they really run that short last year?
There are three possible explanations. The most likely is that they are buying basics, in anticipation of raw material cost increases, particularly in cotton. Still, that’s taking on an awful lot of inventory risk, even in basics. They could be determined to chase market share, at the expense of short-term margins and profitability. They could be determined not to lose a single sale. Either way, if they can’t ship all these units at full price, they could end up having to flood the market with closeouts. Either way, it’s a pretty high risk strategy. After all, their premium brand position is built significantly on being able to get a premium price for their merchandise.
The third possibility is that they’re simply not paying attention. It’s not likely, but I’ve seen it happen. I’d like to think these companies are better than that, though.
Many independent retailers have been too cash strapped to build inventories even if they wanted to. Things are turning around, and cash flow is improving, but independent retailers should resist adding greater depth and be very judicious about adding too much additional breadth to their assortments. Focus instead on ordering more frequently, and turning the merchandise more quickly. Be a merchant, be a trader.
Besides, if you are patient, and keep dollars in your pocket, it sounds like there might be some great closeout buys coming along before too long.