By: Kristin Broughton.
Retailers stuck with excess inventory due to virus-related lockdowns are taking steps to avoid selling the aging clothes, shoes and accessories on their shelves at a loss.
Clothing companies, including Columbia Sportswear Co., Ralph Lauren Corp. and Urban Outfitters Inc., in recent weeks have disclosed millions of dollars in what is often referred to as inventory obsolescence charges. Accounting rules require that companies take these charges when they expect to sell an item for less than what they paid for it.
The charges, while expected, dragged down the earnings of a sector that already was facing pressure. Finance chiefs looking to minimize the unwanted write-downs have activated contingency plans for selling out-of-season clothing at the highest-possible price, including selling through outlet stores and holding excess inventory until they can sell it at a later date.
“If we’re talking about retailers, it’s not so much that it’s excess inventory, but it’s all inventory,” said Zivia Wilson Sweeney, an associate professor of clinical accounting at the University of Southern California. “What are we ultimately going to do to convert that inventory back into cash?”
Source: WSJ (2020)