Roots believes its inventory management strategy will help reduce markdowns

Roots plans to “repack and store” unsold items. (Photo: Canadian Press)

Roots (ROOT, -2.22% vs. CAD$3.08) is heading into its busiest time of the year with high inventory levels and plans to ‘repack and store’ unsold merchandise.

Canadian clothing retailers typically sell more in the second half, when they account for about 70% of annual sales, said CEO Megan Roach.

Roots entered this peak with ‘healthy inventory levels’, up 15% from the same period last year. This is primarily made up of major apparel collections that are “closely in line with expected sales,” she said on a conference call.

Rising inventory levels have raised concerns about potentially unsold items at some US retailers. This usually leads to widespread markdowns, which can hurt margins and profits.

Roots Chief Financial Officer Mona Kennedy said in a conference call, “We are aware of market concerns that some retailers have high inventory levels, which could lead to price cuts.

“At Roots, we believe our inventory is less susceptible to potential markdowns.”

The brand’s apparel consists primarily of “timeless products with limited fashion risk” and can “repackage and hold” excess inventory as needed.

This means that unsold items at the end of the season can be stored until next year and then returned to store shelves.

This is usually a poor strategy for fashion retailers who change their clothing collections drastically from season to season, but it is an option for retailers like Roots whose styles are more classic.

The company’s core collection accounts for about two-thirds of its inventory, making it an efficient approach to repacking and organizing unsold items, Kennedy said.

“From a margin perspective, we remain disciplined in our promotional activities,” she added. “

Roots posted a loss of $3.2 million (M$) in the second quarter on Tuesday. This is despite his more than 20% growth in total sales compared to a loss of about $1.2 million in the same quarter last year.

The company reported a loss of 8 cents per share for the quarter ended July 30, down from 3 cents a year ago.

Revenue for the quarter totaled $47.8 million, compared with $38.9 million in the year-ago quarter.

Retail store sales and online sales increased to $38.5 million from $30.4 million in the second quarter of last year. Partner and Other sales increased from $8.5 million to $9.3 million last year.

During the quarter, Roots relaunched its popular 1980s beaver canoe brand and diamond-shaped logo featuring beavers and trees.

“The relaunch will follow the retro trend that we are seeing more and more in the market, especially due to the demand for logos and merchandise with retro roots,” Roach explained.

She said the relaunch was “very successful” and expects more beaver canoe products in 2023.

Meanwhile, the company’s revenue growth in the second quarter was primarily due to increased store traffic, Roach said.

Roots is also “gradually improving” delivery times and transportation costs, she added.

“Supply chain markets are improving and tariffs are being reduced [et] Transit times have been shortened,” said Kennedy.

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