Inventory Management in the Age of COVID-19

The outbreak of COVID-19 has had an indelible impact on our culture and resulting behavior.  How we work, travel, socialize, and shop have all changed – and we are all questioning what the new normal will be as states and businesses reacclimate and reopen for business.  In the specialty and department store retail business shoppers have become accustomed to shopping online, however, the percentage of online business – although increasing year over year – still pales in comparison to brick and mortar sales; by NRF statistics, they are only 10% industry wide.  

Specialty and department store retailers who’s brick and mortar locations are for the most part closed, are faced with selling from this one sales channel.  Coupled with this, their omni-channel strategy is also impacted.  They are no longer able to provide BOPIS, or BORIS; further burdening their distribution centers.   However, closed stores and burdened DC’s may not be a retailer’s biggest issue.  Retailer’s need to look to how they handle Inventory Obsolesence. 

The inventory purchased months prior to the COVID-19 pandemic was meant to support store sales as well as online. Some of this inventory could be delayed in customs, some may not have left the manufacturer, and some could be sitting in the DC meant to be shipped to stores.  Much of this merchandise is seasonal.  Typically, 80% of merchandise is fashion.  By the time the stores open, it will be obsolete. ​

 How to deal with this inventory obsolescence efficiently will be key to maintaining profitability.  Some options retailers may be considering to manage this inventory are:

• Sell off to jobbers
• Markdown and sell in full price stores
• Send to outlet locations
• Pack and Hold

Regardless of the choice, or combination thereof, there are factors that must be considered.  Each option has an impact to Gross Margin Return on Investment (GMROI); and it will take a precise strategy to ensure the best approach is undertaken to maximize profit.  For example, retailers will have to weight a devasting hit to margin by selling to a jobber for pennies on the dollar; or considering a pack and hold scenario, if appropriate, that will slow turnover also affecting GMROI.  Taking markdowns to liquidate the merchandise will erode margin as well as have an impact on the stores as discussed below.  If a retailer has an outlet strategy this could be an option, but may impose assortment challenges.

In addition to profitability retailers may also have to consider their brand image – particularly private label retailers.  Once a jobber obtains the merchandise the retailer has lost control of their brand image.  The merchandise will likely be sold at discount retailers across the country.  Conversely, taking markdowns on a high volume of merchandise will flood the stores will a poor assortment of merchandise and a poor presentation of obsolete merchandise.  ​

We, at Ascent, hope that by lending our experience and knowledge that you can start to build your strategy for Inventory Management and other sound strategies and processes to help you regain strength in the market as soon as business resumes.  If there are other topics that you would like us to help with, please reach out to me at ralgeni@ascenterpsolutions or [email protected], or by contacting us at 801.660.2901.  We wish you the best during this difficult period.

All the best,

Robert Algeni
Senior Consultant
​Ascent