- Analysts are expecting retailers to be holding deep sales as stores start to reopen in the coming months.
- Clothing retailers will have a lot of inventory to work through, and they will want to get rid of seasonal items right away.
- While deep discounts are a dangerous proposition for retailers, shoppers will likely want to take advantage of the deals.
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This summer, pretty much everything will be on sale.
As stores start to reopen in certain states, they will be working through a bottleneck of inventory unlike any they have seen before.
“There’s probably five times as much excess inventory out there than we’ve ever seen,” UBS analyst Jay Sole told Business Insider.
Stores will be working through piles of clothing that they were trying to sell back when stores were forced to shutter in March. Since clothing is inherently so tied to the seasons, stores will want to get rid of that inventory right away – and that means discounting.
“It’s not easy to sell Easter dresses in August or September,” Sole said.
Apparel retailers ran similarly deep discounts online throughout April when stores were closed across the US. That trend is likely to continue in brick-and-mortar stores once they’re fully open again, in an event comparable to Black Friday.
While low prices will be welcomed by consumers – especially those who are less economically secure than they were before the coronavirus pandemic hit – retailers are typically reluctant to discount their products. Discounts can be damaging to their brand, and if promotions get too deep, stores are no longer making much money on their goods.
Clothing companies have few options for moving inventory aside from heavy discounting. Some may decide to pack away basics that are less seasonal and bring them back to stores next year. Manny Chirico, the CEO of PVH, which owns Tommy Hilfiger and Calvin Klein, said during an earnings call on April 2 that the company would consider such a solution.
Retailers can also consider adapting production cycles, especially when it comes to “seasonless” items, like clothes for exercise, for example.
“Typically people will buy that at any time of the year,” Sole said. “So there’s no need to discount that product, because even if there’s a little bit too much inventory right now, chances are what they can do is just stop making new yoga pants until they have sold all the ones that they have on hand.”
Simeon Siegel, a managing director at BMO Capital Markets, said there’s reason to believe the promotional period won’t last for months and months.
“[Some] companies all stopped ordering and making goods and clothes during this time period. So essentially, unlike any other crisis, companies were able to put their lives and their businesses on hold,” Siegel said.
After a period of heavy discounting, things could be back to normal, he said. But, that all depends on whether people will feel safe enough to go to stores, as well as whether their budget will allow for discretionary purchases.
“I think that the duration of the duration of the stay at home mentality is going to dictate inventory focus,” Siegel said.