Fashion retailers are bloated and it’s not a good look

US fashion retailers are bloated with product.
US fashion retailers are bloated with product.
Image: REUTERS/Ben Nelms
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US fashion retailers are bloated with leftovers after a slow holiday season, and macro headwinds don’t appear to be helping them sell down their inventory.

Lululemon’s $284 million dollars in leftover inventory at the end of the fourth quarter was up 36% from a year earlier. Michael Kors has followed a similar trend—and is now offering price cuts and promotions to jumpstart sales.

At Fossil, which sells watches, sunglasses, belts, handbags, and other accessories, the value of leftover inventory reached $625 million, up from $597 million a year earlier.

The handbag market was hit particularly hard this past holiday season, prompting sellers like Coach, Kate Spade, and Tory Burch to step up their markdowns between 2014 and 2015. These retailers want to show new styles each year, so getting rid of extra inventory is especially important. Too many leftovers can clog the product pipeline, which, in turn, can hinder cash flow.

Retailers like Lululemon and Michael Kors were experiencing explosive growth just a few years ago, which made inventory bloat easier to manage. But sales are growing at a slower pace now.

Slower sales growth can be pinned to a number of factors. For starters, a warmer 2015 holiday season may have cost fashion retailers upwards of $700 million, mall traffic has continued trending downward, and US-based retailers across the gamut have noted pains related to the dollar’s strength against the euro and yen.

It’s a good thing Lululemon expanded into Asia.