News analysis: will 2023 be all about excess stock for UK retail?
The Christmas selling season may have been surprisingly good for many retailers, but a new survey has shown that post-Christmas sales haven’t been quite so buoyant. And returns are adding to a problem for stores that already have a lot of unsold stock.
It means that while headline stories are all about a possible recession or weak consumer confidence, perhaps the biggest problem for fashion stores this year will be excess stock.
In fact, the aforementioned survey — from forecasting and planning software specialist Inventory Planner — said that more than half of UK fashion retailers are stuck with excess stock after a disappointing start to 2023. That follows 22% of excess stock being written off altogether by apparel sellers in 2022.
Some 62% of fashion stores still have goods they can’t sell after January discounting with Inventory Planner saying retailers are sitting on an average of £53,000 worth of excess stock (which has little value and is costly to store) due to the downturn in consumer spending.
Some 48% of companies said there would be “dangerous ramifications” for their cash flow if they failed to sell excess stock and a massive 77% are planning to offer even more discounting to try to shift the unwanted products.
Of course, discounts implemented after the core January sales period can hurt sentiment around new, transitional deliveries, especially if they’re deep ‘panic’ discounts.
And there’s no guarantee that they’ll work. Some 56% of the survey respondents said they’re “greatly concerned” about their ability to shift the products they’re stuck with and the same number said it would be difficult to absorb the loss of marking-down prices and liquidating unwanted items.
UNCERTAINTY IS EVERYWHERE
Stepping away from the survey for a moment, what’s also interesting is just how uncertain retailers are at present. We’ve seen plenty of reports so far this year in which big-name retailers have talked about the festive season but have been either issuing no guidance on Q1 or 2023 sales, or offered guidance that covers a very wide range of possibilities. Only on Wednesday, Pandora (OK, it’s a jeweller not a fashion retailer but it illustrates the point), said this year’s sales would be anywhere from down 3% to up 3%! It shows how even the biggest companies with sophisticated modelling tech are still largely in the dark about consumer intentions.
This means that there’s a big danger of surplus stock being a recurring theme throughout 2023 (and at the same time, not enough (??????) stock is a danger in a double whammy for retailers too).
We’ve already seen how, taken to extremes, excess stock can be hugely damaging. Early last year, just such a problem actually drove Studio Retail under.
After a string of upbeat reports, it swung into crisis mode at the end of 2021 and in January 2022 said it had “a surplus stockholding which requires additional working capital funding whilst this good quality stock is sold through to customers”. It needed a £25 million short-term loan and when it didn’t get it, the company filed for administration. It’s now owned by Frasers Group.
Later last year, Joules also battled a stock problem and said that extensive discounting to clear inventory had hurt its profit margins. The end result was it going into administration in November last year and being bought by Next.
Admittedly, those are worst-case scenarios. But concerns over excess inventory are very real and very big for all retailers.
That was one of the reasons Frasers Group bought Australia/New Zealand-based MySale last year. It said at the time that the MySale business would provide “the opportunity to clear end-of-line Frasers Group products via MySale's established clearance channel. This pipeline will be further enhanced by the benefits of counter seasonality between the European and Australian climates”.
And ASOS in January this year struck a deal with Secret Sales to clear its own stock mountain. It said that at launch, the link-up covers a selection of up to 1,000 products from its own brands, including ASOS Design, Collusion, Reclaimed Vintage, Topshop, Topman, and Miss Selfridge, “all listed at attractive prices”.
The fashion e-tail giant had earlier said it wanted to “right-size its stock portfolio”. The deal with Secret Sales would therefore provide it with “an additional route to clear stock efficiently”.
Of course not all retailers have the deep pockets or flexibility of Frasers and ASOS and with the Inventory Planner survey showing 70% of fashion stores are struggling to predict customer demand and sales in this fluctuating market, excess stock remains a huge problem for many, or even for most.
Inventory Planner CMO Sara Arthrell said: “Excess stock is a huge issue for fashion retailers at this time of year. And a tsunami of returns which always comes in January and February after peak trading is going to make these problems even worse.”
But why is the stock problem so bad this year? Well, peak trading in December for many fashion e-commerce sites was hit by postal strikes, while physical stores also felt the impact of train strikes during the festive season. Then, with 2022’s much-talked-about supply chain snarl-ups having eased quickly later in the year as lead times from east Asia shortened, it was just like turning on a stock tap — late deliveries suddenly materialised and other new stock arrived more quickly than stores had planned for.
M&S has already had to “re-adjust stock flow” and this meant it discounted coats, jackets and boots by 20% to clear them as milder weather combined with customers cutting back led to poor sales for some winter ranges. Last autumn, it even asked suppliers to postpone deliveries and delayed finalising orders for 2023
And while ASOS has linked up with Secret Sales, it’s also planning to write off up to £130 million in out-of-season stock to help refresh its offer. At the same time as M&S was requesting delivery delays, ASOS was sitting on over £1 billion of unsold stock, a third higher than in the previous year.
It’s not just a UK problem either. Walmart, Gap, Target, Abercrombie & Fitch and Macy’s were also reported as having big surpluses during 2022.
Inventory Planner also said that some retailers are ‘hibernating’ AW22 stock with a view to selling it in AW23. This is similar to the way some big names held on to SS20 deliveries that they couldn’t sell when lockdowns began, recycling it for SS21.
We’re still only in early February so it remains to be seen how the rest of the year will play out. But it’s undeniable that “excess stock” could become one of the most-talked-about themes of 2023.
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