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Inventory Is Piling Up During the Coronavirus Crisis — This Is How Companies Are Managing It

Inventory issues are mounting during the COVID-19 shutdown.

As stores around the globe remain shutdown, fashion companies are facing a mounting problem: excess inventory.

The problems began in January, as the novel coronavirus spread rapidly throughout China and forced the closure of factories. Product that was due to arrive in stores for the spring and summer seasons was delayed. “Then China reopened and the inventory started surfacing at companies’ doorsteps at the same time that Europe and North America started to shut down,” explained Ronen Lazar, co-founder and CEO of Inturn, a software company specializing in inventory management.

To address their product overloads, brands and retailers have a few options, but all come with their own challenges. Here, FN looks at six tactics that companies are using to manage inventory issues. 

1. Cancel Orders

The best place to start is early in the supply chain, by stopping production.

At the beginning of the coronavirus outbreak, many brands took the preemptive step of canceling orders at the factory level. In fact, the China National Textile and Apparel Council estimates that textile and apparel imports to the U.S. from China plunged 31.7% to $2.47 billion in January alone.

Matt Priest, president and CEO of the Footwear Distributors and Retailers of America, told FN, “Most of our members on the brand side have canceled orders until we figure out what happens next and when stores will reopen and what demand will look like.”

He noted that factories, for the most part, have been accommodating in regard to the cancellations. “Factories will be patient in order to maintain the relationships, and knowing that ultimately this is short term and, once we get the all-clear, they’ll be back up and running and producing footwear for the American public,” said Priest. 

Meanwhile, retailers are also canceling deliveries from brands for the upcoming months. 

“We were fortunate in that we stopped domestic orders before we shut down,” said Bob Schwartz, president of the Eneslow shoe stores in New York. “We already had reduced our buying in anticipation of the business struggles in New York City in general. In our European buying, some of our vendors had already shipped, so we own the merchandise now, but for those that did not ship yet, we stopped it.”

And as with the factory cancellations, Schwartz said brands are willing to work with him to accommodate his changing needs.

But it’s not necessary altruism behind their forbearance. For brands with strict pricing policies, such as Birkenstock, they want to prevent a glut of merchandise on the market and widespread markdowns. 

David Kahan, president of Birkenstock Americas, told FN the brand was proactive in canceling orders that wouldn’t have sold because stores were closed. “Even in the midst of this crisis, we will insure our inventory level is managed such that our brand equity is always maintained and we are not seen at the consumer level as a brand with excess across the market,” he said. 

2. Sell More Online

With the majority of citizens confined to their homes, e-commerce traffic has been surging, so many brands and retailers have pushed more inventory to that sales channel.   

According to a study from predictive retail analytics firm Quantum Metric, U.S.-based retailers with both brick-and-mortar and e-commerce channels experienced 52% revenue growth online Jan. 27 to Feb. 23 — the period when the illness began its rapid spread outside of Asia.

And FDRA reported that its own membership saw 61% growth in e-commerce last week, compared with the same period last year.

Kahan said Birkenstock is relying on its direct-to-consumer channels to reach customers. “We are fortunate since we have developed a relationship with many of our brand fans and engage them via social media and online commerce.” And he noted the brand’s retailers are doing the same. “Our key partners have ongoing e-commerce businesses which are performing well. And many independents are being creative in reaching their consumers via social media to at least generate some sales at the store level.”

However, experts pointed out that the digital gains don’t begin to offset the overall losses from store closures. “The challenge is that e-commerce is only a portion of total sales,” said Priest. “You’d have to have a 400% to 500% increase in e-commerce sales to get even close to the lost revenue that we’re seeing on the brick-and-mortar side.”

And retailers that have not invested enough in digital operations are particularly hard hit right now, noted Lazar. “That’s probably one of the big lessons to take away here,” he said. “The majority of companies are expediting the migration into digitally-driven business. But for those who are operating in the same old way as merchants, that type of business almost no longer works.”

Aside from consumer-facing e-commerce sites, Lazar recommends allocating more funds toward internal digital solutions that can improve inventory management, such as predictive analysis about customer behavior and a more agile PLM environment.

3. Push Goods to the Off-Price Channel

Traditionally, brands with unsold merchandise have been able to pick up the phone and sell that product to one of the major off-price retailers. But in the current economic crisis, that channel is closed for business — literally.

Off-price chains such as Marshall’s and TJMaxx have shuttered their brick-and-mortar stores with no reopening date in sight. And their parent company, TJX Cos., also ceased online operations during the COVID-19 crisis.

“Those channels are pretty much maxed out for product right now,” said Priest, “so brands can’t dump inventory into those channels. It’s a spigot that’s been turned off.”

Lazar predicted that the off-price channel will pick up quickly when the U.S. economy begins to reopen. “The question is: What priority will off-price use to purchase goods?” he said. “Historically there was a mix of marquee brands, smaller brands and private label. Our belief is that the priority will become based on brand and discount or a combination of the two.”

4. Hold Onto It

If cancellations aren’t an option and the off-price channel is closed, what are companies left to do with excess inventory? Hold it and wait, said experts. 

John Schuler, CEO of the nine-unit Schuler Shoes chain based in Minneapolis, said he and his team will review their inventory closely to see what items they can carry over to the next season. The challenge, though, is the unknown nature of the shutdown. “We don’t know how many weeks we will be closed,” he said. “How do you plan if you don’t know if it will be May or June?”

Companies with e-commerce operations are maintaining merchandise assortments in their distribution centers, ready to fulfill online orders. But even those facilities are reaching capacity, said Priest. As a result, he said, firms being are forced to keep inventory in empty warehouses, or in shipping containers. “That’s an expensive option to maintain inventory that’s not selling,” said Priest.

5. Collaborate with Other Retailers

Members of industry networks such as the National Shoe Retailers of America and the United Shoe Retailers Association have long worked together to ease the burdens of operating a small business. Now, in the current environment, where some retailers may lack product that others have in abundance, there is further opportunity to coordinate.

Eneslow’s Schwartz explained, “There is definitely going to be some reduction of available inventory in a number of stores. For example, New Balance is shut down and you cannot buy size 8D in the women’s 990 style in gray.” 

To address the problem, he said retailers should touch base with each other to see where they can trade or buy extra merchandise. “That way, one can reduce inventory while the other gets filled in on things they need,” said Schwartz.

6. Donate to a Good Cause

The last option for companies is charitable donations — a move that’s been in abundant use in recent weeks as brands such as Crocs, Allbirds, Vionic and Merrell have given away hundreds of thousands of shoes to medical workers and first responders fighting the COVID-19 outbreak. 

Additionally, footwear nonprofits Soles4Souls and the Two Ten Footwear Foundation are fielding more offers of donated goods, which can be distributed to individuals in need. 

And in the case of Two Ten, the product will be sold to provide emergency financial assistance to footwear families impacted by the coronavirus pandemic. According to the organization, it has received 10 times its normal number of assistance applications and will require more than $3 million over the next six months to meet the needs of industry employees in crisis.

For donors, there are business advantages to giving away product, aside from the humanitarian aspect. For example, companies can clear the excess from balance sheets and claim a tax benefit for their gift. Plus there is the goodwill halo effect when consumers learn of their generosity.

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Excess Inventory: 6 Tactics to Manage It During Coronavirus Shutdown
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