The Failed Seasons

Fashion retailers in the UK are counting the costs of overstocked warehouses and falling sales, putting further pressure on cash flows.

With the UK experiencing warmer winters and cooler, wetter summers over the past few years, fashion retailers have seen a drop in sales earlier in the season as customers’ purchasing behavior has followed the weather pattern. The aid of online shopping and retailers’ improved delivery capabilities have also influenced customers to delay their new season shopping until far later in the season, leaving fashion retailers with warehouses full of unsold stock.

Late season shopping has meant that stores are choosing to delay displays until later in the season and are left holding excess stock. This disrupts sales for the rest of the year and means that many are forced to utilize the heavily promoted sales such as Black Friday and Boxing Day. Whilst these sales do boost foot traffic and revenue, products are offered at a heavily discounted rate, leading to a loss of full price margin sales and a reduction in profits.

As trading statements for the 2015 winter season have been released, many retailers who fell short of expectations have pointed to unseasonably warm winter weather as the cause of poor sales. Next plc, one of the UK’s leading fashion retailers, blamed the unusually warm weather in November and December 2015 for its poor fourth quarter performance.

Overall, there was a fall in sales of clothing and footwear of 4.62% in the UK in December 2015 compared with December 2014. At the same time, the average UK daytime temperature was 4.4 Degrees Celsius in December 2014 compared with 7.9 Degrees Celsius in December 2015.

The poor autumn / winter clothing sales for 2015, caused by the milder winter, have been further impacted by cold and wet weather in early 2016 delaying sales of spring / summer clothing and further dampening profits. In the three months from December 2015 to February 2016 clothing sales have plunged 3.4%.

With an overstocked warehouse and shrinking price margin, some high-street retailers are turning to off-price retailers, such as TK Maxx, to help solve their surplus stock problems. These companies take advantage of overruns, canceled orders, and forecasting mistakes made by their full-price retail sector counterparts, and purchase the excess inventory at a 20%-60% discount. Off-price retailers offer an immediate solution to offload last season’s stock in bulk. This approach eases cash flow pressures in the short term, allowing retailers to reduce losses and purchase next season’s stock.

A combination of both the stock purchasing model used and the difficulties faced by full-price fashion retailers, due to the recent failed seasons, has allowed for the growth of off-price retailers during the last few years as retailers turn to off-price retailers for a solution to their expensive stock holding problem. Off-price retailers are now seen as competition to the full-price retailer, particularly in the U.S.

The bulk sale of stock to off-price retailers is a sensible approach but it is certainly not a long-term solution given the drastic reduction in margin. Fashion forecasters can no longer rely on the historical trend patterns of previous years to predict sales and are having to take risks to adjust buying plans and merchandise to prevent future losses.

We are increasingly seeing fashion retailers adjust their buying practices to purchase fewer quantities of stock at the start of the season and instead restock shipments to coincide with demand. In order for this to be effective, fashion retailers must ensure robust supply chain management to be agile and responsive.

Whilst there are a certain set of repeating trends within the fashion retail industry, recent changes in weather have played a part in both sales and pricing. The recent decline in sales margin due to unseasonal weather adds further pressure on fashion retailers, who already have to account for the cost of the national living wage, pensions and increasing store running expenses. However, a forward thinking and strategic review of the supply chain and a more strategic approach to driving sales of seasonal merchandise, could help prevent these issues ahead of the next season.