Even as Stores Reduce Inventories, Markdowns Are Forever – WWD

For retailers clearing out spring/summer goods to make room for back-to-school merchandise, the dog days of summer are already here.

Price promotions in June through the Fourth of July period have intensified for many stores, at levels at or above last year. They’re trumpeting discounts of 50 to 60 percent off, sometimes even as high as 70 percent off, with the biggest deals seen online versus in stores.

Despite retailers actively bringing inventories down, markdowns are most noticeable in the casual and career sportswear categories across men’s, women’s and children’s, as well as in handbags and even swimwear, where sell-throughs generally haven’t lived up to expectations.

By price promoting early, retailers hope to offset some of the impact of Amazon Prime Day, which happens on July 11 and 12. Still, that huge promotion is more of a phenomenon relevant to the mass merchant sector. In tandem with Prime Day, there are Target Deal Days from July 9 through July 15; Best Buy’s Black Friday around the same time, and Walmart’s Plus Week starting Thursday. The China-based extreme value-oriented Shein could very well join the Prime Day bandwagon.

Retailing has been hurt by the persistence of inflation; Americans traveling at record levels this summer, leaving less money for discretionary spending, and violent weather conditions across much of the Midwest and South in recent weeks.

Meanwhile, concerns about the back-to-school season being impacted by the Supreme Court’s decision last week to overturn the Biden administration’s student-debt forgiveness plan are growing. The president’s plan would have eradicated about $430 billion in loans, though he has indicated there might be alternative plans that could help alleviate student loan burdens.

Among the steeper promotions, Gap brand on Monday posted online sales offering 50 percent off select styles of shorts, T-shirts and swimwear. Kate Spade advertised an extra 50 percent off sale styles through the Fourth of July. Magnetic Me, which sells merchandise for newborns, toddlers and kids, triggered Monday a 60 percent off site-wide sale.

Australian swim and resort wear brand Lisa Maree is staging a Fourth of July site-wide sale at up to 60 percent. Athleta’s semi-annnual sale also offers up to 60 percent off and various styles under $60. Wayfair’s July Fourth clearance offers up to 70 percent off. Lands’ End offered up to 76 percent off orders, and Madewell’s “Big Summer Sale” promoted up to 60 percent off items in stores and online.

Back-to-school selling typically takes off in mid- to late July, depending on the retailer, and stays steady through Labor Day. This year, according to industry analysts, the b-t-s business should be satisfactory for retailers, but no barn burner.

“Retailers are starting discounts a little earlier and they’re bigger — even with inventories coming down,” observed Dana Telsey, chief executive officer and chief research officer of the Telsey Advisory Group. “The focus is on the consumer being more discerning, so you want to be able to capture the consumer when you can.

“Back-to-school will be a competitive season,” with budgets shifting more to essentials, Telsey predicted.

Asked about the Supreme Court’s overruling of the student loan forgiveness, she said: “It will be an overhang, and in the mix of the discussion of how much to spend. Don’t forget inflation is out there, though it seems that’s become less of the conversation.”

On the brighter side, “Inventories are being managed very well,” Telsey said. “They’re coming down faster than people expected. The focus is on chasing into demand.”

“It’s like a tale of two cities. Right now, sell-through varies significantly by retailer,” observed Craig Johnson, president of Customer Growth Partners. “Some still have to hustle to get stuff off the floor. It’s best to get rid of it before the peak back-to-school shopping starts. But you do see that some retailers have cleared through a lot of merchandise, or shipped it to outlets. In general, retailers have a better balance [of sales to inventory] than a year ago.”

“Promotions at department stores are heavier. Macy’s for a short time was not so promotional but they are back at it, along with the department store sector,” Jessica Ramirez, senior retail analyst at the Jane Hali & Associates investment research firm, told WWD. Target’s promotions, Ramirez said, “are almost flat compared to last year. Their discounts are less and there are less categories at discount. They have been able to move inventories.”

Ramirez added that some brands where business has been soft, such as Gap, “are starting to dip into heavier promotions, though Coach is keeping their promotions in line.” Across the industry in June, due to semi-annual sales, “We saw more markdowns and traffic went up in June compared to May online,” Ramirez said, referring to data from Similarweb, a website traffic analytics and competitive intelligence firm.

In her report on promotions, issued Monday, Ramirez wrote: “Department stores have started to increase promotions year-over-year. Macy’s and Kohl’s have increased promotions in the number of categories and the percentage of discounting…Markdown cadence in the U.S. was high across some brands/retailers due to the semi-annual sales many hosted in June.

“Brands/retailers with a high markdown cadence include Foot Locker, Nike, Under Armour, Kors, Levi’s and Revolve Group,” Ramirez indicated. Still, for the industry overall, “Even with promotions/markdowns, prices are mostly flat year-over-year across categories. [But] we have noted some decreases across seasonal colorways/products.”

Looking ahead, Ethan Chernofsky, vice president of marketing at Placer.ai, which tracks foot traffic at stores, wrote in his report that many consumers have delayed big-ticket items in recent months due to high interest rates and the larger macroeconomic situation. “These shoppers may use the July sales as opportunities to purchase these items at a discount. And with back-to-school coming up, parents are likely to take advantage of the markdowns to stock up on children’s clothing and school supplies.

“But shoppers may also be more careful with their spending than in previous years and make fewer expensive impulse purchases,” Chernofsky added. “And with some consumers looking for a reason to shop — without breaking the bank — more affordable categories, such as apparel and beauty, which are not typical major Prime Day winners, may receive a significant boost. Analyzing weekly retail visits to key categories also suggests that beauty and apparel are likely to do quite well during the upcoming sales events. Walmart has also seen strong visitation trends recently — perhaps thanks to its reputation for particularly low prices — and may well attract an even greater number of shoppers during its discount event.

“Meanwhile, Target’s baseline growth has been more muted, but that is heavily related to their high starting point, and with today’s consumers on the hunt for bargains, Target’s Circle Week can be expected to drive traffic back to the company’s stores.”

Johnson of Customer Growth Partners advises that inventory levels should be commensurate with sales levels or a bit above. “If sales are up 4 percent, you want your inventories to be slightly above that.”

Asked for his outlook on the back-to-school season, Johnson said that receipts have been arriving to stores, and that he expects sales to be up 3.7 percent. “That’s OK, not great. People are much more considered in their purchases.”

“Given the recent news of student loan repayments, I feel the low and middle income is more likely to be affected,” Ramirez at Jane Hali said. “Mass and department stores are likely to be affected, but off-price can be winners as consumers trade down.”