Overstock Glut Could Hit This Summer

With outdoor retailers continuing to cancel orders for spring and summer, concerns are growing among outdoor apparel brands of a significant inventory glut this summer.

With consumers not responding to deep discounting by retailers, some are concerned whether the discount channels brands have resorted to in the past will work. Some liquidation outlets fell behind on payments to manufacturers as early as last fall. This has sent some brands scrambling to find buyers before goods being imported from China reach U.S. docks.

“It’s starting to snowball and it will hit this summer,” said Eliza Sokolowska, a liquidation sales coordinator based in Oakland, CA.

In late January, executives at Columbia Sportswear acknowledged that the outlet channel it was building to mitigate the effects of weather on its seasonal business is becoming increasingly important in dealing with the “volatile and unpredictable consumer environment that we expect to continue.” Columbia Sportswear opened 15 outlet stores in the United States in 2008 and will open another 15 this year even as it pulls back on other retail initiatives.

Brands looking to liquidate overstock should consider the following options:

Sell to existing dealers.
This is the best option for protecting your brand image and supporting existing dealers, who can use the discounts to drive traffic to their stores. Offer the discounts to your best paying dealers first on 15 to 30 day terms. Then open it to the wider dealer base via e-mail and notices on your dealer Website. Note that all sales are final. Prices: 10-20% below wholesale, 60% below retail.

Liquidation sale.
Organize your own or hire a liquidation sale planner to provide turnkey services. This allows you to reach existing customers willing to pay more in markets outside your distribution area. Most liquidators work on consignment, which means you don’t get paid until after the sale. Prices: 50% below retail.

Jobbers.
This channel can normally move a lot of merchandise very quickly, including high volumes of a single SKU. They are considered a last resort, however, because they pay pennies on the dollar and often cause channel conflict by selling at 70% off retail online or to discount retailers. Moreover, this channel is already swimming in inventory and may be less inclined or able to buy. Prices: 80 to 90% below retail.

Open your own store.
This costs money, takes time and requires retailing expertise, but if you have reached a certain size, it may make sense. With retail occupancy rates falling, now is a great time to negotiate a lease in many parts of the country. Horny Toad has liquidated some of its inventory through an outlet store in Freeport, ME, since 9/11, when it set up the store after a major order was canceled.

Outlet malls.
This is an expensive option and usually requires ceding control over some areas of operation, such as outdoor signage. At Tanger Outlet Malls, average annualized base rents approach $20 per square foot, but annual average sales exceed $300 per square foot. While vacancy rates are rising at some outlet malls, space remains tight, which means this may not be a short-term solution. Tanger Outlet Mall expects to finish the year with 95% occupancy and says it is turning away prospective tenants that don’t add long-term value to its centers. Tanger’s clients include Columbia Sportswear, Eddie Bauer, L.L. Bean, Nike, Orvis, Quiksilver, Timberland, Under Armour and VF Outdoor.

Combination of the above.
Columbia Sportswear said in late January that it would use its own outlet stores, dealer network and the value channel to liquidate a major order that was canceled