Dive Brief:

• Old Navy is rebalancing its inventory mix after shipping delays impacted demand planning, leaving the company with excess product that is "out of sync" with consumer preferences, executives said on a Q1 earnings call in May.
• Delays have extended the usual 12-week pipeline for core categories, which has “significantly limited the brand's responsive abilities,” Gap CEO Sonia Syngal said.
• Lower-than-expected demand for the retailer's size-inclusive line also exacerbated excess inventory levels. Old Navy will scale back its selection of inclusive sizes and has already "canceled a significant portion of extended sizes" for Q3, Syngal said.

Dive Insight:

Old Navy had been working to place orders earlier with vendors to ensure on-time deliveries after port congestion caused lengthy delays and pushed the retailer to rely more on airfreight, executives said in November. But the retailer's quest to lower freight costs and improve delivery times left it out of touch with current fashion trends.

"Reverting to a longer inventory push model not only diluted economic value but meant we were defining customer trends too early in the process and were unable to chase into the right fashion choices closer in," Syngal said on the Q1 call.

Old Navy plans to add more dresses, pants and tops after the brand saw lower-than-expected demand for fleece and activewear in Q1, two categories that grew significantly during the pandemic. Old Navy expects to improve its inventory assortment in the fall and holiday season.

Long term, the retailer is leaning on technology to make operations more efficient and speed up the production process. Old Navy accelerated its use of a digital product tool to "innovate more rapidly with suppliers and significantly reduce product design and development time lines," Syngal said on a Q4 call in March.

Syngal said the tool helped drive a 40% reduction in total development time for the fall 2022 season compared to the previous year. Parent company Gap is also using predictive analytics to help the company make better decisions about how to allocate inventory across stores.

Old Navy expects to improve its inventory assortment in the fall and in time for the holiday season. But failing to capitalize on women's fashion trends carries consequences for the rest of the business, which is a major retailer of kids and baby clothes.

"When we aren't delivering for moms, she's less likely to come to Old Navy for her kids," said Syngal.