Australian fashion retailers are “dangerously” overstocked, holding an average of $248,685 in additional product or material post-COVID according to inventory management software providor Unleashed.
The findings come from Unleashed’s analysis of 660 Australian SMBs across 13 industries, including fashion, personal care, and home fittings.
The issue of overstock is noted across all sectors, with building and construction seeing the highest in overstock by $370,000. Alcohol and beverage saw the lowest average stock level of $73,244.
The providor said most retailers are yet to course-correct from the supply and transport issues caused by COVID delays.
“Whether it’s a furniture maker or a clothing line, you can’t blame Australian retail businesses for taking on extra stock while supply chains were lagging behind,” Unleashed head of product Jarrod Adam said.
“Thankfully, we are now in a place where we can safely define what ‘too much’ stock is, and where businesses can afford to free up cash-flow as economic conditions tighten.”
The average overstock value in its report is the difference in value between ideal stock levels for each product, versus actuals. Ideal levels were found using industry-standard formulas that consider both the rate of sale and delivery lead times.
Recently, City Chic Collective confirmed its inventory was between $163-164 million at the end of the first half of FY23. The Group said it remains on track to deliver an inventory balance of $125-$135 million at the end of FY23, with purchases in second half FY23 remaining flexible to demand fluctuations.
City Chic indicated that China’s COVID-zero policy (which the country scrapped at the end of 2022) drove the company to bulk on inventory.
In April last year, City Chic said it was "proactively" managing inventory movements:
“We have the inventory ready, and in market, to drive growth in all regions, protecting demand in the balance of 2H and into Q1 FY23.”
In February this year, the company recorded a net profit after tax (NPAT) loss of $27.2 million for the first half of the financial year. It also reported an 8% drop in sales revenue of $168.6 million.
City Chic CEO Phil Ryan said there had been a shift in spend across key international markets.
"City Chic has had a challenging first half across our key markets as consumer demand contracted, particularly in the USA and Europe. In Australia, revenue was slightly down as lower online sales more than offset strong growth in stories as customers returned to in-store shopping."
The loss included an additional inventory provision of $19.6 million, primarily in Europe, Middle East and Africa (EMEA) markets.
In Australia and New Zealand, revenue was $79.5 million, down 3% on PCP but up 11% on 1H FY21.
Josh Ambler, senior manager at accounting firm BDO, said that understanding overstock levels can mean extra cash in pocket with clever inventory control. But, he said these benefits wont be felt for all.
“Some businesses will have a far easier time moving off of excess stock than others,” Ambler said. “For an FMCG (fast moving consumer goods), some relatively simple adjustments in re-supply orders can quickly mean more cash in the back pocket.
“For businesses with a slow cash flow cycle, ordering will take place at set times, or in higher volume to secure a good price. These companies may instead need to consider how they can move off excess stock before it comes obsolete.”
Adam said Unleashed’s findings will make a difference for product businesses pressured by inflation and supply chain shocks.
“It's all about finding ways to control the controllables,” Adam said. “That can mean anything from improving internal efficiencies, to using a more granular, data-based approach to rebuying.”
