As summer tilts toward autumn, major clothing retailers have found themselves with a massive glut of inventory, forcing many chains to make tough choices. Per CNN, discounts and promotions are the usual strategies for clearing excess goods, but that's not good enough for Kohl's and the Gap. Both companies announced plans to use a "pack and hold" strategy, whereby they hold select merchandise in warehouses to be reshelved later. For example, in a recent earnings call, Gap executives said they'll pack away shorts, T-shirts, and tank tops until next summer. "We're confident that we will be able to integrate our pack and hold inventory with future assortments," said the company's finance chief.
As Forbes reports, the past couple of years have been very challenging for the industry, beginning with pandemic shutdowns in 2020, when companies were forced to close stores and demand plunged. The decline of indoor malls and ever-increasing competition from online sellers continue to add to the challenges, along with supply chain disruptions that delayed many seasonal deliveries. Now, inflation has crushed demand once again, and it couldn't have happened at a worse time for retailers, who ordered their inventory months ago, when the future seemed relatively bright, per Supply Chain Dive.
Deep discounts can certainly help clear excess inventory, but they can also kill the bottom line. Just ask Nordstrom, which says it'll lose $200 million in gross profits in the second half of 2022 because of clearance efforts. Discounts can also harm brands, diminishing their value in consumers' eyes. "Pack and hold" may help avoid costly write-offs, but it's not without risks, as it adds warehouse costs; plus, there's no guarantee the goods will sell when they're unpacked. All of this has CNBC's Jim Cramer and Jeff Marks buying stock in TJ Maxx, which specializes in discounted items. The company's stock, TJX, has held up relatively well this summer compared to Kohl's and the Gap. (Read more retail sales stories.)