Turning old stock into new money

Apparel brands are exploring ways to get rid of inventory and old stock pile-ups.

From opening new factory outlets and tying up with discount stores to even adopting reverse logistics techniques, high-end brands like Moschino and sports lifestyle brands such as Puma and Levi Strauss are devising strategies to reduce inventories and old stock pile-ups.

While so far the thrust was on end-of-season sales, the low offtake due to the slowing economic environment has compelled most branded apparel makers to look at means to reduce stock to almost nil while maintaining margins.

“As consumers become more trend- and fashion-conscious, it is necessary to liquidate old stock,” observes Purnendu Kumar, associate vice-president, Technopak. “Running sales promotion in a regular store can lead to pressure on margins given the high rentals. It thus becomes important to explore the option of factory outlets or tie-ups with discount stores,” he adds.

For Puma, the aim is to liquidate stocks every six moths to replace merchandise with new trends. “The factory outlet is one channel, we also sell off old stock to the Loot Stores,” says Rajiv Mehta, CEO, Puma Sports India, adding, “Sales also translate into a margin squeeze but we intend to expand discount stores to be able to provide fresh collections.”

Luxury retailers too are exploring similar options since there has been a significant drop in demand from aspirational consumers. “Our aspirational customers are at their best during sales. Since the economic crisis hit, there is a definite slowdown in cash flow and consumers are refraining from spending on luxury. So, we are looking at opening factory outlets to make luxury accessible to a wider number of consumers,” says Priya Sachdev, COO, TSG International Marketing Pvt Ltd, a luxury retailer.

The earlier strategy of flushing out old stock seems to have stopped working as Tier II and III cities get more in sync with the latest trends in the apparel industry. “We try and maintain optimum inventory levels. Also, we make sure each of our stores in these cities get fresh stock on a regular basis and the unsold stock is channelised into other discount formats,” says Shyam Sukhramani, Director, Marketing at Levi Strauss (India) Pvt Ltd.

But even as apparel makers strive to find alternate means of liquidating old merchandise, the discount channel continues to be a small contributor to overall sales. “While it is important to liquidate stocks, this channel accounts for a very small portion of the brand sales, anywhere between 5 and 10 per cent,” Kumar adds.