Kohl’s and Gap have a surprising plan for this season’s unsold clothes

Kohls (KSS), Difference (GPS), Carter’s (IRC) and other channels have said in recent weeks that they will keep unsold in their warehouses and put it back on the shelves later this year and in 2023. It’s a strategy known as “pack and hold.”

“We are confident that we will be able to integrate our pack and hold inventory with future assortments,” Gap chief financial officer Katrina O’Connell said on a conference call with analysts last week. Gap plans to store shorts, short-sleeved t-shirts, and tank tops.

The retailer said its inventory rose 37% in its most recent quarter, 10 percentage points of the increase resulting from pack and hold.

Kohl’s said it has an additional $82 million in inventory, including sleepwear and fleeces, and will sell it ahead of the next holiday season. Carter’s will retain some fall and winter items it planned to sell in its own stores and at other retailers.

These retailers and many others have a glut of clothing in part because consumer demand has weakened.

“We are packing and holding inventory given the slowdown in demand we have seen in recent months,” Carter CEO Michael Casey said on an earnings call last month.

Some shoppers, especially low-income consumers, have reigned in their discretionary purchases due to rising inflation. Plus, many shoppers refreshed their wardrobes earlier in the pandemic and don’t need another pair of sweatpants or a new look for the office.

Retailers don’t have unlimited space to store inventory and must decide what to do with their unsold merchandise.

Some companies are responding by cutting back on products and ramping up promotions to try to meet demand. While discounts help retailers cut losses quickly and free up space to bring in new items, they can also dilute a brand’s image.

“Promotion can be cheap today and very expensive tomorrow,” said Simeon Siegel, analyst at BMO Capital Markets.

Holding on to excess merchandise gives chains another option to solve their inventory puzzle.

This strategy has several advantages: retailers do not have to immediately delist or discount products and can aim to sell them at higher prices when consumer demand strengthens. They usually pack the basic items that are unlikely to go out of style in the future.

But keeping surplus merchandise is expensive, and there’s a risk that yesterday’s produce won’t sell in future seasons.

“A retailer doesn’t want to tie up their inventory dollars in products that don’t move,” Siegel said.

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