Taking stock of fashion’s $210bn inventory problem
BUSINESS LIVE / 16 MAY 2019 - 10:43 / LARRY CLAASEN
Fashion retailers are faced with a dilemma: to keep up with the demands of 'fast fashion' they need rapid stock turnover. But what do they do with the surplus?
What does a clothing retailer do with lines that don’t sell? If it’s international fast-fashion house H&M, some of that stock gets incinerated. Having found itself saddled with $4.4bn in unsold inventory, the Sweden-based retailer has few options when it comes to disposing of it.
Picture: 123RF/SERGIY TRYAPITSYN
A similar story may be told about luxury goods maker Burberry, which had a policy of burning its unsold merchandise.
The company reversed its position in September, after a public backlash to the news that it had destroyed £28.6m worth of stock in 2017 to protect its brand.
About 30% of the clothes made around the world are never sold. For 2018, the cost of this inventory distortion was estimated to be $210bn
H&M and Burberry are not alone. Many other retailers — Nike and Chanel among them — have been called out for destroying their stock.
But what are companies to do with their surplus inventory?
Some retail chains and consumer brands sell unsold goods on to third-party stores, such as Century 21 in New York. But for those looking to preserve an air of exclusivity around their goods, this might not be a satisfactory solution.
It’s a situation that’s left retailers and brands in a fix. Shorter retail cycles are driving increased production of goods.
The FM reported earlier this year that the turn to quick-response manufacturing has meant a retailer such as Zara produces 12,000 styles a year (against an industry average of 3,000). This increases shopper footfall — but the downside of the trend is that retailers cannot keep clothes on-shelf for too long; they have to free up space for new ranges.
According to the Australasian Circular Textile Association, about 30% of the clothes made around the world are never sold. For 2018, the cost of this inventory distortion was estimated to be $210bn.
Retailers are under pressure to change their stocking practices. The UK parliament, for example, recently released the "Fixing Fashion: Clothing Consumption and Sustainability" report. It says retailers should consider other options — donating clothes, for example — before destroying them.
That report argues that burning stock is not only damaging to the environment — it’s also harmful to human health, as it releases plastic microfibres into the atmosphere.
WHAT IT MEANS:
In SA, retailers get empowerment points for donating surplus stock to the Clothing Bank, which helps black women entrepreneurs
"Incineration should only be used as a last resort where there is a health and safety case for destroying the stock," the report says. "The government should ban incinerating or landfilling unsold stock that can be reused or recycled."
In SA, local retailers tend to return excess stock to their suppliers, which then resell it to third-party stores. This is what Woolworths does — with the stipulation that the labels on its house-brand ranges, such as David Jones, be defaced or destroyed before they are resold.
It’s opened a whole new industry — over the past few years discount chains such as Jam Clothing and Fashion Fusion have become sizeable operations. Jam Clothing has grown its footprint to more than 100 stores across SA. And Fashion Fusion, previously located just in KwaZulu-Natal, is also becoming a national player.
That these chains are becoming notable competitors is evident in Fashion Fusion’s decision last year to open a flagship store in Durban’s regional mall, Gateway Theatre of Shopping. This marked a shift from its standard model, under which it operates shops in smaller, discount-focused centres such as Woodmead Value Mart in Joburg.
Retailers aren’t limited to selling excess stock on through other chains; in the past few years there’s been a move to donate goods to the Clothing Bank.
The NGO then resells the stock to black women entrepreneurs, who sell it in their communities.
Founded in 2010, the Clothing Bank has helped about 3,000 women get their own businesses off the ground; it’s generated R157m in business for them, and received 1.8-million donated products from local retailers, worth R109m for the past year. The company puts the average monthly profit per business owner at R3,304.
In exchange for making the donation, the retailers — Woolworths, Edcon, TFG, Pick n Pay Clothing, Mr Price, Truworths, Lucky Bean Clothing and Girly Things — get empowerment points for supporting enterprise development.
The Clothing Bank model has worked so well that it has won several awards, including the 2016 Social Entrepreneur of the Year award from the Schwab Foundation, in collaboration with the World Economic Forum.
But Clothing Bank co-founder and CEO Tracey Chambers believes the model cannot be easily replicated in other countries in Africa and large parts of Europe.
She says SA has a large underprivileged urban population who need clothes that will fit into a business environment. But in Europe there isn’t a strong informal market to sell these clothes. And elsewhere in Africa there isn’t such a large presence of fast-fashion merchandise.
The model could, however, find traction in rapidly modernising countries such as India, says Chambers, where there is a similar rising demand for corporate fashion.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER