With consumer demand cooling, retailers have shifted from scrambling to secure supply to aggressively clearing excess inventory.
Rising inflation has tempered spending and pushed many businesses to deploy steep markdowns and other measures to move unsold products. The Census Bureau reported that July retail sales remained flat compared to June, with the National Retail Federation noting clothing and clothing accessory store sales were down 0.6% month-over-month.
“I think a lot of companies said, ‘Oh there’s a buying spree,’ and forgot the spree part,” said Erika Marsillac, professor of supply chain management at Old Dominion University. “A spree ends, this is not something that continues forever.”
Slowed spending came just as many companies were receiving orders placed months ago when demand was higher. As a result, retailers are now overwhelmed with a “sonic boom of inventory,” Urban Outfitters CEO Richard Hayne said on a Q2 call.
Businesses are employing a variety of tactics, including steep discounts, order cancellations and pack and hold strategies, in an attempt to clear their shelves of stagnant products and make room for holiday inventory.
“None of them is a perfect tool, but retailers have to resort to them for lack of better options,” Jie Zhang, a marketing professor at University of Maryland’s Robert H. Smith School of Business, said in an email.
After suffering slow sales beginning in late June, Nordstrom is among retailers now prioritizing product markdowns and inventory clearance to make room for new products, Nordstrom President and Chief Brand Officer Pete Nordstrom said on the company’s Aug. 23 Q2 earnings call.
Urban Outfitters, which owns brands including Free People and Anthropologie, is also striving to reduce inventory through the second half of the year with increased markdowns and order cancellations.
When it comes to markdowns for the retailer’s lower-tier brands, such as Urban Outfitters, Hayne was pragmatic. “I hesitate to call it a blood bath, but it’s going to be ugly in terms of the amount of discounting and markdowns,” the CEO said on the call.