Denim shorts in winter: Express, Gap stores glutted with prior seasons' goods

Express

07/12/2022 19:35

By Arriana McLymore
       RALEIGH, N.C., Dec 7 (Reuters) - Clothing retailers such
as Express and Gap that stashed away mountains of unsold basics
during the coronavirus pandemic now are slashing prices on
clearance merchandise in a last-ditch 
    But the deep discounts they're dangling on out-of-season
clothing may not appeal to inflation-weary shoppers such as
Elieth Chaparro, 30. 
    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 jean shorts and patterned
crop tops priced under $15.99.
    “The fabric looks like it’s been there for a while,” she
said, referring to a short-sleeve pink blouse on the rack.
    Retailers including Express Inc  EXPR.N  and Gap Inc  GPS.N 
have held on to older merchandise, from as far back as last
holiday season, with the hopes of selling the inventory this
fall. 
    "If you lower the price enough, you'll get rid of it," said
Eric Beder, chief executive of Small Cap Consumer Research. 
    At risk are retailers' margins during the critical holiday
shopping season and their efforts to be the go-to location for
trendy fashions. 
    Jessica Ramirez, an analyst at Jane Hali & Associates who
frequently does store checks, has been seeing summer clothing on
Gap's racks for weeks. Retailers placing past-season merchandise
is “not a good sign” for profit margins or customer engagement
at a time of slowing demand for clothing, she said. 
    "Shoppers are buying to wear right now," Ramirez added, so
having items that customers immediately want and need is
crucial.  
        Gap declined to comment. A spokesperson for Express did
not immediately respond to requests for comment. 
    Shopper demand has put a strain on apparel retailers
throughout the year, boosting inventories and forcing retailers
including Gap, Victoria's Secret and Kohl's, to slash prices.  
    After receiving holiday items too late for 2021, the
retailers also began ordering seasonal items earlier in 2022 to
avoid supply-chain mishaps, but found themselves struggling with
lower demand from customers strained by rising costs of gas and
groceries. 
    Express, which reports third-quarter earnings on Thursday,
saw total inventory increase 29.9% year-over-year in the second
quarter and 40% in the first, after bringing in late holiday
merchandise. Sequined blazers and pants from last holiday season
are now on store floors, Express told investors in November.
    Express on Tuesday offered online and some in-store holiday
sales with 30%-50% off on all items, with an extra 50% off on
clearance items such as cami tops and animal print maxi dresses.
The sales come months after the company said it would offer more
promotions to clear inventory.  
        Deals since October and over Thanksgiving weekend were
up in both frequency and discounting depth, including from
clothing retailers, according to research from Jane Hali &
Associates. Some started promoting at higher levels earlier than
last year.  
    General apparel was the most discounted category between
Thanksgiving through Cyber Monday, according to Salesforce data
on Tuesday, with discounts averaging about 34%. 
    'MARGIN DRAIN' 
    Gap also warned investors in November that carrying summer
merchandise into the fall was a "margin drain," and now some of
those styles are still on Gap's racks, according to store
checks. 
    Gap.com on Tuesday posted discounts of 60% on basic crewneck
t-shirts. The promotion excluded trendier styles like faux
leather pants. 
    In mid-November, Gap Chief Financial Officer Katrina
O’Connell said it expects to enter 2023 with lowered
inventories, even if it must slash prices. She said that holding
on to unsold inventory would “use up cash” in the short term and
that the company is focused on clearing old merchandise by the
new year. 
        To be sure, getting rid of old clothing by 2023 could
help Gap and Express free up space for trendy merchandise that
shoppers are willing to buy and will cut costs on warehousing. 
  
    Gap’s clothing stock for the third quarter ended Oct. 29 was
12% higher, with 9 percentage points being what Gap executives
call “pack and hold” merchandise — stored away “slow-turning”
basics, including tee-shirts and shorts, that would eventually
return to sales floors. 
    Gap's profit margin's fell to 38.7% in its third quarter
from 41.9% a year earlier, significantly impacted by markdowns.
Wall Street expect Gap's margins to rise to 34.61% in the
holiday quarter from 33.66% last year.  
    Express' third-quarter margins are expected to fall to 29.7%
from 33.22% a year earlier, according to analysts' estimates on
Refinitiv. 
 (Reporting by Arriana McLymore, additional reporting by
Siddharth Cavale
Editing by Nick Zieminski)
 ((arriana.mclymore@thomsonreuters.com; 917-667-8733; Reuters
Messaging: Twitter: @Arriana))