American Eagle’s comparable sales in the latest quarter fell six per cent from a year ago. The brand’s priorities are adjusting its assortments and rightsizing inventory.
Other retailers including Walmart, Target, Gap and Kohl’s face similar problems with bloated inventories. Target has had to resort to deep discounting to get rid of excess inventory when its quarterly profit fell 90 per cent. Walmart has employed similarly aggressive markdowns to move items like clothing out of stores, which has led to a significant cut in profit expectations.Gap and Kohl’s, meanwhile, are looking to avoid some markdowns with a pack-and-hold strategy for certain items, which allows them to reserve excess inventory until demand rises.
Inventories pile up
To clear products off shelves in the meantime, retailers including Macy’s and Nordstrom have turned to markdowns that are cutting into profits. Nordstrom had to go in for deeper discounts than expected and it could take a couple of quarters for the company to properly readjust. The department store operator in August had reported stronger sales for its second quarter, but slashed its financial forecast for the year citing a glut of inventory and slowing demand later in the quarter. Macy’s has also slashed its revenue and earnings forecast for the year because of weakening apparel sales over the quarter as the consumer faces higher costs on essential goods, particularly grocery. The company has taken the markdowns necessary to help clear inventory.
The way forward
The industry is working to figure out the type of items people want coming out of the pandemic, while also facing softening demand as inflation squeezes budgets.By 2023, retailers might be able to adjust more quickly to demand as the supply chain normalizes. But for now companies are struggling to adjust their offerings.