Düsseldorf, Munich The sporting goods company Adidas has a huge problem: After a disappointing first quarter, it is sitting on tons of unsold textiles and shoes. And that can even be quantified fairly precisely: by the end of March, inventories had climbed by around a third compared to the previous year to 4.3 billion euros.
By and large, this bill only included the three-digit million amount that the sports company had accrued from taking back goods from dealers in China. Now the brand with the three stripes has started to collect items again on a large scale from stores in Europe and America after the weeks of closings.
Like Adidas, a large part of the retail sector is facing an unprecedented challenge: Since many shops around the world had to close at the same time, there is a gigantic inventory of unsold goods in the shops and warehouses – and meets a clientele who have not yet opened the shops is in the right mood to buy again.
“We are seeing a previously unique crisis in retail,” observes Matthias Tauber, Germany boss of the Boston Consulting Group (BCG). “Customers are changing their buying behavior at a speed that retailers have never seen before.” The result of a representative survey by BCG: Germans have dramatically restricted their purchases during the corona crisis – and don’t want their buying behavior so quickly even after the end of the pandemic change again.
And there is an additional problem. Because although the warehouses are still full, new goods are already rolling in. “Especially in the fashion trade with monthly novelties, space must always be created for new goods,” says Thomas Täuber, retail expert at Accenture. “Of course, that causes massive problems.”
The same applies to shoes, gifts and decorative products. Model changes are also pending in consumer electronics. Many of these orders can no longer be canceled. “The dealers are now sitting on stocks that are currently hardly for sale,” observes Täuber.
Now they are desperately looking for solutions to the problem. First of all, they need space. “We are experiencing a huge demand for additional storage capacity in the retail sector,” reports Kuno Neumeier, managing partner of Logivest, a large broker of logistics properties. The dealers buy time with it. You can first store the spring goods and present the summer collection in the shop.
Take C&A as an example: The retail chain had to accept millions of items of clothing that were already on the move from the Far East, book them into the merchandise management system and store them. “That was only possible with the addition of a lot of external storage space, which had to be made available as quickly as possible,” said Martijn van der Zee, Chief Merchandising and Sourcing Officer of C&A Europe, in an interview with the specialist magazine “Textilwirtschaft”.
“Slash and jump at the prices”
But retailers can only delay the big discount battles, they probably cannot avoid them entirely. “Nobody will prevent the first few months after the reopening of the stores from being hit and miss with prices in the fashion trade”, fears Oliver Seidensticker, managing partner of the shirt and blouse manufacturer of the same name.
Many shopkeepers are also preparing for this. For most retailers it is now: “Get out of the goods at any price,” warns Helmut Hagner, head of the Frey Group in Cham, Bavaria. There are few alternatives to heavy discounts, he says. “The need is too great for many. With manufacturers as well as dealers. ”The spring collection has to go because the new seasonal goods are already arriving again from the producers. It was not delivered at the height of the crisis, but is now on the way.
The medium-sized Münster shoe chain Zumnorde has the fully paid spring and summer collection in stock as tied capital. Nevertheless, junior boss Thomas Zumnorde is still reluctant to offer strong discounts, even if the pressure from the competition is high. He wants to store more expensive, timeless shoes for the next year. “Goodyear welted shoes don’t lose their value so quickly,” he emphasizes. Now Zumnorde is benefiting from the fact that they do not sell cheap goods from the Far East, but shoes from small boutique factories in Italy.
“Some retailers are trying to push selected products such as accessories or basic clothing into the next season,” observes Jessica Distler, head of the retail sector at BCG. Luxury companies that sell timeless accessories such as watches or jewelry could also postpone goods into the next season more easily.
“It would be best if we only reduced the seasonal goods at the end of the summer, as in the past, in a classic summer sale,” says shoe retailer Zumnorde. But the industry cannot agree on that. C&A, for example, is clearly focusing on discount campaigns. “We can reduce our goods until they are sold,” says a company spokesman, describing the advantage over many branded corporations. For example, jackets are currently being offered up to 70 percent cheaper.
“Overall, we expect that the proportion of goods sold at full price at fashion retailers will fall by 15 to 20 percent,” predicts trade expert Täuber. This will affect many retailers sensitively, because according to estimates by the Accenture consultant, up to 40 percent of goods were already sold at a discount in the pre-Corona times. “Many retailers will cost four to six percentage points of gross profit at the end of the year.”
Profits will collapse brutally
Conflicts arise not only between dealers, but also in relationships with suppliers. “Some suppliers have accepted cancellations, but some suppliers have not,” reports Hagner. The short delivery rhythms of fashion have always been difficult. “It’s a vicious circle, an industry problem that urgently needs to be resolved,” Hagner demands. The industry has been aware of this for a long time, but the pressure to act has increased again due to Corona.
Martin Kerner from the outdoor store Basecamp in Karlsruhe is also very angry about some of his suppliers: “Many of them seriously believe that we can sell normally again after the opening and should kindly take our pre-orders.” That means: orders the past year when the world was still fine. Kerner: “I don’t know whether it’s wishful thinking or desperation. But it will not work to fill up dealers with goods that they cannot sell. ”
Because sales are still far from the level before Corona. Travel accessories, for example, are almost impossible to sell, and nobody wants sleeping bags or backpacks at the moment. Longer payment terms are no solution. Because one day the bills would definitely be due, “and nobody knows whether they can then be paid”.
Because no matter how the industry mines the mountain of goods – profits will collapse brutally. For listed traders, the consequences are already visible. The fashion company H&M has announced that it will close the second quarter with a loss. Electronics retailer Ceconomy already reported an operating loss of 131 million euros in the first quarter of 2020 and no longer trusts itself to make a forecast for the full year.
For many retailers, this is not only due to the lost sales. A number of products can now only be sold at large discounts, be it via online shops, outlets or classic secondary users. Saturn and Media Markt, for example, have extra shops on Ebay through which they sell excess goods. With the software solution “Commerce Cloud” from the start-up Roqqio, you control prices and sales. But they cannot avoid significant discounts either.
At the same time the costs rise. “The additional storage capacities that are now being rented mean immense additional expenses that nobody had planned for,” says Logivest managing director Neumeier. There are also handling costs for relocating, repackaging and labeling.
“The logistics service providers are one of the big winners of the crisis,” explains industry expert Neumeier. Because they are often more flexible than owners of large warehouses, they can adapt more quickly to the temporarily changing needs of retailers and offer not only storage space but also additional services.
The current situation is therefore a practical test for existing partnerships between retailers and logistics service providers. Tchibo has given a large part of its logistics to the BLG Logistics Group Bremen. Galeria Karstadt Kaufhof relies on the Fiege Group for logistics. Logivest boss Neumeier reckons that such partnerships could emerge stronger from the crisis because they offer more flexibility. “We should see these models more often in the future.”
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