With the back-to-school (BTS) shopping season over and retailers shifting their attention to the all-important holiday selling season, it begs the question: What can retailers do after the BTS cycle is over to set up stores for a successful end-of-year push?
Priority No. 1 for all retailers is to move BTS inventory out of the store to make room for the next wave of seasonal products. Back-room storage is often limited, and front-of-house shelf space is even more sparse, especially in urban storefronts. Leading retailers are taking a proactive approach to cycling out stale inventory.
Retailers should first consider strategies that will result in revenue generation and moderate margin gains. Consider the following:
- Offer leftover inventory at steep discounts and promotions in mainline stores and online. Timing of an inventory clearance is critical, as putting sales tags out too early will unnecessarily reduce BTS season margins.
- Repurpose BTS inventory into other departments for prolonged shelf life. For example, select school supplies can be shifted into the office supplies or arts and crafts sections of a store, which aren’t as sensitive to shifts in seasonal shopping. This strategy, while only applicable to a subset of BTS styles, has the potential to maintain original target margins.
- Sell inventory to large discount retailers, such as Ross or T.J. Maxx. The selling retailer will take a significant margin hit on these transactions, but the inventory is moved off the books quickly. Educated consumers are aware of this pattern and look to pounce on inventory flowing into discount retailers in the late September-October time period at a 50 percent-plus reduction from original prices.
- Flow products out of mainline stores and into outlet stores. The first outlet stores were used almost exclusively for the purpose of selling leftover inventory from mainline stores. However, as outlets gained popularity over the past two decades, retailers began designing and producing specific products for this channel that they could offer at lower costs. Retailers with a significant outlet presence still have the ability to use their outlet doors as a means of inventory liquidation, and many do so very effectively. Ever spy that one rack in a Ralph Lauren Factory Store with a seemingly random mix of styles that have been marked down over four times? This is inventory that once sat in one of Ralph Lauren’s mainline stores but needed to be cleared out for the next season’s inventory. For the shopping sleuth, it's possible to find a cashmere sweater for under $100!
For some retailers, bad BTS inventory bets may not be easily moved via the above tactics. In this case, retailers must resort to nonrevenue-generating measures to quickly move inventory off shelves and off the balance sheet:
- Giving to charities provides important items to underserved communities and those in need. The social benefit of providing essential school supplies to the next generation is obvious. Furthermore, donations often come with tax benefits.
- Sometimes companies show good will to their workforce by offering employee giveaways or other perks to acquire excess inventory at little to no cost. This is a prudent tactic that shows appreciation to employees and also makes space for the next round of inventory.
- As a last resort, retailers may consider inventory destruction for items that can’t be donated due to quality or safety issues.
In the retail sector, keeping inventory flowing is a key to success. While some of these tactics may lead to lower BTS season margins, the opportunity cost of keeping stale BTS inventory in valuable real estate is just too high with the holiday season just around the corner. Unlike the classic lesson we all learned in school, inventory saved is not inventory earned, so keep it moving!
Andrew Billings is a principal and senior leader in North Highland Consulting’s retail and CPG practice.