Inventory Is Piling Up During the Coronavirus Crisis — This Is How Companies Are Managing It

By Jennie Bell of Footwear News

Apr 17, 2020

As stores around the globe remain shutdown, fashion companies are facing a mounting problem: excess inventory.

The problems began in January, as the novel coronavirus spread rapidly throughout China and forced the closure of factories. Product that was due to arrive in stores for the spring and summer seasons was delayed. “Then China reopened and the inventory started surfacing at companies’ doorsteps at the same time that Europe and North America started to shut down,” explained Ronen Lazar, co-founder and CEO of Inturn, a software company specializing in inventory management.

To address their product overloads, brands and retailers have a few options, but all come with their own challenges. Here, FN looks at six tactics that companies are using to manage inventory issues.

1. Cancel Orders

The best place to start is early in the supply chain, by stopping production.

At the beginning of the coronavirus outbreak, many brands took the preemptive step of canceling orders at the factory level. In fact, the China National Textile and Apparel Council estimates that textile and apparel imports to the U.S. from China plunged 31.7% to $2.47 billion in January alone.

Matt Priest, president and CEO of the Footwear Distributors and Retailers of America, told FN, “Most of our members on the brand side have canceled orders until we figure out what happens next and when stores will reopen and what demand will look like.”

He noted that factories, for the most part, have been accommodating in regard to the cancellations. “Factories will be patient in order to maintain the relationships, and knowing that ultimately this is short term and, once we get the all-clear, they’ll be back up and running and producing footwear for the American public,” said Priest.

Meanwhile, retailers are also canceling deliveries from brands for the upcoming months.

“We were fortunate in that we stopped domestic orders before we shut down,” said Bob Schwartz, president of the Eneslow shoe stores in New York. “We already had reduced our buying in anticipation of the business struggles in New York City in general. In our European buying, some of our vendors had already shipped, so we own the merchandise now, but for those that did not ship yet, we stopped it.”

And as with the factory cancellations, Schwartz said brands are willing to work with him to accommodate his changing needs.

But it’s not necessary altruism behind their forbearance. For brands with strict pricing policies, such as Birkenstock, they want to prevent a glut of merchandise on the market and widespread markdowns.

David Kahan, president of Birkenstock Americas, told FN the brand was proactive in canceling orders that wouldn’t have sold because stores were closed. “Even in the midst of this crisis, we will insure our inventory level is managed such that our brand equity is always maintained and we are not seen at the consumer level as a brand with excess across the market,” he said.

2. Sell More Online

With the majority of citizens confined to their homes, e-commerce traffic has been surging, so many brands and retailers have pushed more inventory to that sales channel.

According to a study from predictive retail analytics firm Quantum Metric, U.S.-based retailers with both brick-and-mortar and e-commerce channels experienced 52% revenue growth online Jan. 27 to Feb. 23 — the period when the illness began its rapid spread outside of Asia.

And FDRA reported that its own membership saw 61% growth in e-commerce last week, compared with the same period last year.

Kahan said Birkenstock is relying on its direct-to-consumer channels to reach customers. “We are fortunate since we have developed a relationship with many of our brand fans and engage them via social media and online commerce.” And he noted the brand’s retailers are doing the same. “Our key partners have ongoing e-commerce businesses which are performing well. And many independents are being creative in reaching their consumers via social media to at least generate some sales at the store level.”

However, experts pointed out that the digital gains don’t begin to offset the overall losses from store closures. “The challenge is that e-commerce is only a portion of total sales,” said Priest. “You’d have to have a 400% to 500% increase in e-commerce sales to get even close to the lost revenue that we’re seeing on the brick-and-mortar side.”

And retailers that have not invested enough in digital operations are particularly hard hit right now, noted Lazar. “That’s probably one of the big lessons to take away here,” he said. “The majority of companies are expediting the migration into digitally-driven business. But for those who are operating in the same old way as merchants, that type of business almost no longer works.”

Aside from consumer-facing e-commerce sites, Lazar recommends allocating more funds toward internal digital solutions that can improve inventory management, such as predictive analysis about customer behavior and a more agile PLM environment.

3. Push Goods to the Off-Price Channel

Traditionally, brands with unsold merchandise have been able to pick up the phone and sell that product to one of the major off-price retailers. But in the current economic crisis, that channel is closed for business — literally.

Off-price chains such as Marshall’s and TJMaxx have shuttered their brick-and-mortar stores with no reopening date in sight. And their parent company, TJX Cos., also ceased online operations during the COVID-19 crisis.

“Those channels are pretty much maxed out for product right now,” said Priest, “so brands can’t dump inventory into those channels. It’s a spigot that’s been turned off.”

Lazar predicted that the off-price channel will pick up quickly when the U.S. economy begins to reopen. “The question is: What priority will off-price use to purchase goods?” he said. “Historically there was a mix of marquee brands, smaller brands and private label. Our belief is that the priority will become based on brand and discount or a combination of the two.”

4. Hold Onto It

If cancellations aren’t an option and the off-price channel is closed, what are companies left to do with excess inventory? Hold it and wait, said experts.

John Schuler, CEO of the nine-unit Schuler Shoes chain based in Minneapolis, said he and his team will review their inventory closely to see what items they can carry over to the next season. The challenge, though, is the unknown nature of the shutdown. “We don’t know how many weeks we will be closed,” he said. “How do you plan if you don’t know if it will be May or June?”

Companies with e-commerce operations are maintaining merchandise assortments in their distribution centers, ready to fulfill online orders. But even those facilities are reaching capacity, said Priest. As a result, he said, firms being are forced to keep inventory in empty warehouses, or in shipping containers. “That’s an expensive option to maintain inventory that’s not selling,” said Priest.

5. Collaborate with Other Retailers

Members of industry networks such as the National Shoe Retailers of America and the United Shoe Retailers Association have long worked together to ease the burdens of operating a small business. Now, in the current environment, where some retailers may lack product that others have in abundance, there is further opportunity to coordinate.

Eneslow’s Schwartz explained, “There is definitely going to be some reduction of available inventory in a number of stores. For example, New Balance is shut down and you cannot buy size 8D in the women’s 990 style in gray.”

To address the problem, he said retailers should touch base with each other to see where they can trade or buy extra merchandise. “That way, one can reduce inventory while the other gets filled in on things they need,” said Schwartz.

6. Donate to a Good Cause

The last option for companies is charitable donations — a move that’s been in abundant use in recent weeks as brands such as Crocs, Allbirds, Vionic and Merrell have given away hundreds of thousands of shoes to medical workers and first responders fighting the COVID-19 outbreak.

Additionally, footwear nonprofits Soles4Souls and the Two Ten Footwear Foundation are fielding more offers of donated goods, which can be distributed to individuals in need.

And in the case of Two Ten, the product will be sold to provide emergency financial assistance to footwear families impacted by the coronavirus pandemic. According to the organization, it has received 10 times its normal number of assistance applications and will require more than $3 million over the next six months to meet the needs of industry employees in crisis.

For donors, there are business advantages to giving away product, aside from the humanitarian aspect. For example, companies can clear the excess from balance sheets and claim a tax benefit for their gift. Plus there is the goodwill halo effect when consumers learn of their generosity.

 https://footwearnews.com/2020/business/retail/excess-inventory-coronavirus-cancel-orders-offprice-channel-1202967750/

Independent Shoe Stores Use SBA Loans as a Stop-Gap During Coronavirus Crisis

 

By Barbara Schneider-Levy of Footwear News

Apr 15, 2020

It’s taking all hands on deck these days to help keep small businesses afloat during the COVID-19 pandemic.

Independent shoe stores are working with vendors and landlords to renegotiate deals, while the government has stepped in with a range of loan and grant programs as part of its historic $2.2 trillion stimulus package, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Among the financial aid options available to stores is the Paycheck Protection Program (loans that allow small businesses to pay their employees), Small Business Administration funding programs such as Express Bridge Loans and Debt Relief and an Economic Injury Disaster Loan Emergency AWhile retailers agree these loans are easy to apply for, they are a short-term solution as the U.S. shutdown shows no immediate signs of ending. However, for many small businesses, they can help sustain operations in the meantime.

Here, independents share their financial issues and how they’re navigating the stimulus package process.

Bob Schwartz

Owner, Eneslow, New York

Schwartz furloughed all employees during March, closing all stores on March 19. “We applied for the $10,000 maximum EIDL and PPP loans, the latter which is 2.5 times annual payroll. But we have not gotten anything approved,” he said. “There was also supposed to be a $75,000 interest-free loan from New York City that’s still sitting on the shelf somewhere.”

Meanwhile, the retailer is facing issues with its business interruption insurance policy. “We have it for loss of revenue caused by civil authority,” said Schwartz. “However, my insurance company has denied responsibility, noting it specifically excludes viruses. To me, [this marks] a groundswell [of opposition] for all businesses in America who pay insurance for years and years. There has to be a screaming cry from the retail and wholesale industries.”

Lester Wasserman

President, Tip Top Shoes, New York City

Among Wasserman’s first moves was applying for the PPP loan. “Initially, our bank was a little bit slow on the draw, but once they got their system up and running, we [were able] to submit our paperwork.” While the loan assists with payroll for an eight-week period, Wasserman remains uncertain if he will be able to reopen before the money runs out. “Covering the payroll is great,” he said, “but the question remains — are customers ready to shop. The entire situation from top to bottom, leaves us with far more questions than answers.”

Alan Miklofsky

President and CEO, Alan’s Shoes, Tucson, Ariz. 

Miklofsky applauded the speed at which the government put the CARES Act together, although he remains skeptical the SBA EIDL loans are properly funded. “The legislation does a lot, but isn’t perfect based on the timing requirements, such as requiring a specified eight-week disbursement period that will occur while most retailers are closed and some employees will be receiving higher-than-normal unemployment benefits,” he said.

And in addition to payroll, Miklofsky much address payments to vendors. “These loans can’t fix the issue where spring merchandise was already in the door, got old and became less valuable as the product was sold at a discount nationwide,” he said. “There also remains the expectation that retailers pay full rent during their, slow, closed and rebuilding periods. Additional loans may be available if the retailer can demonstrate it will be in compliance with banking requirements moving forward. No banker will make that loan without collateral (real estate equity) and personal guarantees.”

John Schuler

CEO, Schuler Shoes, Minneapolis

Schuler’s nine-unit chain applied for PPP and SBA EIDL loans, so far receiving approval for PPP. The process, said Schuler, was seamless since the store had all documentation requested in order, and it has already received approval for the PPP loan. “Reporting payroll [numbers] was a big part of it,” he said. “Since our [system] is fairly sophisticated, it was easy to pull what was wanted. However, I don’t know when we’ll see the money in our account. Once we get it, the clock starts ticking and we have eight weeks to spend it, so I’m in no big rush if I have to wait a couple of weeks.”

 https://footwearnews.com/2020/business/retail/shoe-stores-sba-small-business-administration-loans-coronavirus-stimulus-1202966710/

 

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Meet the Shoe Store That’s Expanding in Manhattan — Even With High Rent & E-Com Competition

 

By Barbara Schneider-Levy of Footwear News

Aug 2, 2019

Bob Schwartz takes a small-town approach to big-city retailing. The owner of comfort chain Eneslow, which celebrates its 110th anniversary this year, opened a fourth location this summer on Third Avenue on New York City’s Upper East Side, just blocks away from a sister store on Second Avenue.

Schwartz, whose family acquired the business 50 years ago, said he is constantly adapting to changing demographics and neighborhoods. “We went uptown because we saw revenue going down in our Park Avenue location and thought the Upper East Side was a good market for us,” said Schwartz, who made his first move to the neighborhood a decade ago. “It meant more rent and labor costs, but a neighborhood where the demographics are a good fit.”

Although two locations so close to one another might compete, they each draw a distinct clientele. “If you talk to customers who walk into the Third Avenue store, they don’t shop on Second Avenue,” said Schwartz. “New Yorkers are provincial. They don’t go two blocks past where they live to buy food or do their dry cleaning.”

While Eneslow is fluid when it comes to real estate, it’s been consistent in a product offering focused on European brands not readily available in the U.S. In addition, three of the store’s locations are equipped with shoe modification labs staffed by a team of craftsmen.

“Eighty percent of our business is problem feet,” said Schwartz, referring to the steady referrals from doctors who send patients requiring custom footwear and orthotics to the store.

The retailer is currently wrestling with a year-to-date business that’s down nearly 5%, but remains optimistic. “We’re still here, but it’s hard. I don’t lose sleep over it because every small business owner knows that it’s about cash flow. You have to have an intimate knowledge of your business and know your product inside out,” Schwartz said.

Jessica Walker, president and CEO of the Manhattan Chamber of Commerce, where Schwartz serves on the board, agrees it’s a tough time for small businesses, particularly in New York. “It’s the cumulative impact of high rents and the increase in people who shop online,” Walker said. “We live in an expensive town with all sorts of mandates, taxes and fees. These things make it tough to stay here.”

Here, Schwartz talks about negotiating rents, the challenges of the internet and what he looks for in a brand.

What’s the biggest challenge facing independents today?

BS: “There’s really no growth in brick-and-mortar stores. It’s about how much we’re losing this year versus last year. How do we generate profitable revenue? One way is going to Europe to find vendors that aren’t available here. We can work on three or four times cost and give a better value to our customers since we don’t need a distributor or middleman. We’ve been successful in this approach for the last six years.”

With an emphasis on therapeutic footwear, who is your customer base?

BS: “Everyone who lives in Manhattan walks on concrete. They’re walking up and down stairs getting on the subway. Their feet break down. Younger people are demonstrating they want quality, value, service, skills and retail know-how. Birkenstock, which is hot, is [attracting] young people all day long in all our stores.”

In a competitive retail environment, what has been your most effective marketing tool?

BS: “Our windows. People walk by all day and we can show the world we have Birkenstock. We do email blasts and direct mail to zip codes in our geographical area. [We benefit] from word- of-mouth and medical referrals. I am a member of the Manhattan and Queens Chambers of Commerce. When we run an event, they come. If these groups need to host education or training seminars, I will do it in our stores and bring people in. Grassroots has been the key in each neighborhood.”

As the athletic footwear category continues to attract comfort customers, how does it fit into your merchandise mix?

BS: “We have increased our athletic shoe business, with brands including Hoka One One and New Balance. But more than that, it’s about European orthopedic footwear vendors that make beautiful walking shoes and are now making sneakers in wide and extra-wide widths. I have a stretch upper shoe from Berkemann in Germany that blows out.”

How are you finding craftsmen for your customization workshops?

BS: “They come from other countries with skills. It’s a unique niche. They may have made handbags and will now be an upper maker. We’ve brought people into the country, although it’s always been hard to get a green card and legalization. I have six people that we’ve sponsored.”

 https://footwearnews.com/2019/business/retail/eneslow-comfort-shoe-store-110-years-opens-tore-1202811522/