It is no longer a matter of only survival for fashion firms! With economy reopening in the US and consumers on a shopping spree, business seems to slowly coming back to normalcy – at least for the time being.
The retailers are now working at deploying post-pandemic strategies that talk about reducing inventory levels, lower rent payments or invest less on promotions with the intent to enhance profitability.
And so it is not surprising to see apparel giants American Eagle Outfitters Inc. (AEO) and Abercrombie & Fitch Co. adjust their business models after a year that saw many of their stores temporarily shut.
Less is more seems to be the mantra adopted by both retailers!
The booming growth of e-commerce, especially over the last year, has immensely contributed to increase in revenue – thereby also reducing the need to hold inventory or run stores.
Endorsing the same thoughts, Scott Lipesky, CFO, Abercrombie, said that there’s much better margin running business with ‘less’. He added Abercrombie wants to operate with less stock.
Notably, Abercrombie posted inventory of US $ 389 million as of 1 May 2021, which is down by 9 per cent from the previous year.
Meanwhile AEO in 2020 had reduced number of tops at American Eagle, and is ordering smaller quantities of apparels from its global suppliers.
AEO has also had fewer promotions in last 3 quarters and as per the company having fewer inventories allowed them to do so.
Closing stores and negotiating lower rents also help increase profit. In this regard, AEO closed 57 stores in 2020 and signed around 200 short-term leases, which makes them more flexible. It is important to mention here that AEO saved US $ 7 million in rent in its first fiscal quarter that ended 1 May.
Abercrombie also has around 250 leases that are set to run out by the end of this year. It had closed 137 stores in its latest fiscal year after the expiry of leases.
The efforts are there to work out the strategies and make profit; however, it remains to be seen whether costs would rise again, as online sales require spending on distribution centres, transport and workers to fulfill orders.