Dive Brief:
- Gap saw 12% higher inventory in Q3 YoY, down nearly 2% compared with Q2, due to easing in-transit stock levels, according to an earnings call last month.
- Ending inventory for the quarter was at $3.04 billion as the company lapped last year’s supply chain challenges by taking corrective actions.
- The company also plans to pursue moderate buys and ongoing markdowns, among other strategies, in Q4 to further tackle excess inventory levels, CFO Katrina O’Connell said in the call.
Dive Insight:
Retailers have been plagued by high inventory levels all year and have implemented various tactics to slash inventory.
After a 37% YoY rise in inventory in Q2, Gap hailed this quarter’s inventory levels as an improvement but not a suprise. The retailer expected some financial benefits this quarter as Q3 lapped with the height of supply chain challenges in 2021, O’Connell told investors.
Considering next year’s demand trends, Gap will continue to implement leaner buying practics in the new year to provide additional flexibility and “better align inventory levels,” O’Connell said.
Besides leaning into more moderate buys and promotional environments, the retailer is pursuing other methods to re-balance inventory levels.
The company released some of last year’s holiday pack and hold inventory, with plans to integrate that inventory into future assortments, the CFO said. It is relying on it to optimize its margins in the short term.
Moving into spring, Gap aims to regain its agility in making stock adjustments and benefit from reinstated responsive inventory capabilities as it provides “the opportunity to be much closer to demand and be able to chase into the inventory trends,” O’Connell noted. Responsive inventory can also take the form of adjusting inventory based on demand, she added.
“With the manufacturing disruption that we saw, starting with India closing and then Vietnam closing and many of the other jurisdictions closing down during COVID, we really lost those capabilities which caused us to have to lean too far forward into total inventory as well as category inventory,” O’Connell said. “So, having those levers back will give us so much more flexibility.
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