Growing inventory levels at VF Corp, Nike, Polo Ralph Lauren & others

Andria Cheng of MarketWatch reported on rising inventory levels at several major apparel brands. As you can see from the following excerpt from her report, there are important strategic reasons why these companies would benefit from implementing a Liquidation Sales Management Solution, like B-Stock’s. For a fashion company to be hamstrung from reacting to shifts in consumer preferences because they have too much cash tied up in old inventory is crazy. You can see why being able to move outdated stock quickly and not take a huge earnings hit for it can be a powerful strategic weapon.

Here is the excerpted report by Ms. Cheng:

Increased inventory levels among apparel and shoe manufacturers could mean higher discounts and gross-margin pressures if sufficient demand fails to materialize, according to a Citigroup report.

First-quarter inventory growth at clothing and shoe manufacturers has an average spread of 13 percentage points over their second-quarter sales growth estimates, Citigroup’s analyst Kate McShane said.

For instance, VF Corp. (NYSE:VFC) , maker of products including Wrangler jeans and North Face jackets sold via retailers from Wal-Mart Stores Inc. (NYSE:WMT) to Macy’s Inc. (NYSE:M) , saw its first-quarter inventory climb 24%, versus a 10% projection for second-quarter sales growth.

Sneaker company Nike Inc.’s (NYSE:NKE) most recently reported quarterly inventory growth was up 18%, compared with Citi’s sales-growth estimate of 7%, McShane said. Shoe company Timberland Co.’s (NYSE:TBL) inventory rose 36%, four times Citi’s 9% sales estimate.

While Liz Claiborne Inc’s (NYSE:LIZ) inventory declined 3%, the maker of Juicy Couture clothing and Kate Spade handbags is expected to have an even bigger 9% decline in sales, the analyst said. Under Armour Inc.’s (NYSE:UA) inventory jumped 68%, above Citi’s 35% sales-growth estimate for a company known for its compression workout clothes.

Other companies, including Merrell shoe maker Wolverine World Wide Inc. (NYSE:WWW) , Polo Ralph Lauren Corp. (NYSE:RL) and Columbia Sportswear Co. (NASDAQ:COLM) also saw inventory growth above estimated sales-growth levels, she said…

…“A ramp-up in inventories and product-cost inflation headwinds combined with an uncertain demand environment could pressure margins,” the analyst said.

With the apparel industry bracing for the rise in cotton and other costs that have hit the market and are expected to add to increased pricing pressures more dramatically in the second half, companies such as VF said they have bought some goods early to get the benefit of lower costs as the industry wrestled with whether it has leeway to pass on increased costs to shoppers.

Still, buying goods early to take advantage of lower costs has another risk that may lead to more markdowns: It may leave companies with increased fashion risk as the goods in stock give them little room to react to any last-minute fashion changes, some analysts have said.

Posted in: Liquidation