Retailers debate whether to sell goods at low prices or keep them

Many seasonal goods, buried in containers, arrive late due to supply chain issues. That means apparel wholesalers are stuck with plenty of apparel designed to ship to retailers earlier this winter.

Although they make products for brands you know, most clothing wholesalers are companies you’ve probably never heard of. “They will work on the actual design, manufacturing, importing and then stocking the product and reselling it to a retailer,” said HSBC commercial banker Eric Fisch.

Since the start of the pandemic, Fisch said, retailers (the brands you’ve heard of) have been canceling bulk orders. For decades, that was really rare.

“So the wholesaler now has a difficult decision to make: are you selling it at a very deep discount? Or do you keep it until – hopefully – the retailer decides to take it? Fisch said.

In the past, any clothes that wholesalers couldn’t sell would likely have landed on the clearance rack. This has changed. “They’re going to try to hold the line as much as they can as the season progresses to sell goods at what they consider to be the high price point,” Fisch said.

This can be difficult to do with seasonal items. Ask Ginny Pasqualone, CEO of children’s clothing wholesaler Sparkledots.

There are rows of Christmas dresses in Pasqualone’s storage area right now. She’s still recovering from last holiday season, when retailers held early sales and consumers jumped into holiday shopping. At the same time, much of his inventory arrived late. To get it to her customers, she spent a lot of money on air freight.

“Honestly, the companies knew they had us by you-know-what,” Pasqualone said of air cargo carriers. “They were able to charge whatever they wanted.”

To help offset that, Pasqualone is keeping its stash of adorable holiday dresses totally off-season until next Christmas.

“It’s either that or trying to sell it below cost, and the market is flooded with other manufacturers trying to do the same thing,” she said.

Yet it is money locked up in stocks that she could invest in her business. To make sure this doesn’t happen again, she orders models with a longer shelf life. “There is no best before date on unicorns. There is no expiration date on flamingos or mermaids,” she said.

Even now, with the holiday chaos behind us, wholesalers are scrambling to keep up with the ever-increasing costs of everything from raw materials and production to transportation.

That’s the experience of Chris Volpe, CFO and COO of wholesaler United Legwear & Apparel, which sells to a wide range of retailers including Dollar General and Neiman Marcus.

“Usually you lock in your price, it’s good for six months. You go through your development process, you sample it, you place your production and you’re locked in,” Volpe said. “We find that if we don’t place production this week and we place it next week, the cost increases could be dramatically different.”

But there is a silver lining to this. Typically, clothes lose value the longer they sit, whether on a retailer’s shelf or in a wholesaler’s storage unit. The recent surge in inflation has changed the equation.

“This is the first time in probably 30 years that you’ve had an inflationary impact in retail where apparel products actually go up in price,” Volpe said.

So waiting to sell older clothes – at full price – that cost less to make a year ago could end up saving wholesalers money.

“I hate to say it as a CFO, but it’s not necessarily a bad thing that your inventory turnover is slowing down because you own the goods at a better value,” Volpe said.

This explains why holding, not rushing to sell, is a gamble Volpe and others are ready to take right now.