Many retailers, especially in fashion, are stuck with excess amounts of inventory meant for their stores over the pandemic. With the high seasonality of fashion products, retailers are being faced with ageing inventory and cash tied up in stock that is quickly becoming obsolete. This can potentially pose a great threat to a retailer’s or brand’s financial health, so alternative channels of distribution are increasingly sought after.

At the beginning of the pandemic in early 2020, retailers were mostly worried about supply issues while experiencing an unprecedented boom in their ecommerce activity. Retailers were concerned with not being able to secure merchandise from Asia, especially China.

But as we start to come out the other side of the pandemic (or at least a first phase with vaccinations), we are more likely to have seen a demand crisis in the fashion sector, meaning an unprecedented shock to consumer behaviour patterns.

Today, online sales are sitting on average at 15 to 20 per cent of a retailer’s total sales in Australia.  During the peak phases of the pandemic lockdown we saw ecommerce rise to 30 per cent of a retailer’s total sales. But even if ecommerce remained at this level and all inventory was made available online, it would not absorb all the stock sitting in stores.

However, to minimise the damage to the balance sheet, there is a significant opportunity for retailers to tap into the rapidly growing off price segment and build new and complementary revenue streams.

While brands may originally not have wanted to be distributed through these channels, it will enable them to move stock and leverage a product lifecycle that spans beyond just a season. Additionally, if done well, it can still protect the brand and grow the business at the same time.

Leveraging product lifecycles

Off price channels should become a key part of ecommerce strategies, as it provides a platform to sell to many consumers, especially new ones from different segments.

Many brands have a clear idea of their commercial operating model, which usually entails launching a new product or collection and seeing it gradually mature over time with a tactical merchandising and discounting approach.

There will always be some leftover inventory, but this can be leveraged into a major opportunity instead of becoming a burden, if played tactically with off price channels.

If brands plan ahead, they can have their products listed on the right off price channels at the right time to keep the products moving. This will ensure their products have a life even after the original season ends and ageing inventory can be monetised in a smart way.

Protecting your brand through off price

Traditionally the off price segment is focused on bargains and deals for consumers, with merchandising catered to creating deal packages and offering discounts, rather than providing a curated “new-in” assortment.

Often brands do not want to be associated with bargain hunting platforms and drastic price reductions, however, there are new platforms and shopping clubs for a more upscaled segment that consciously market the products in an appealing way.

Brands now have available to them strategic partners of choice to ensure appearance, visuals and merchandising of their stock is still high quality.

The Outnet, a sister site to luxury platform Net-a-porter, is a perfect example of this. They stock high-end brands at up to 75 per cent discount and do so through high-quality imagery and content marketing, which does not diminish the brands associated with the platform. The product may not always be current season but flawless and high quality nevertheless.

Additionally, retailers can consider building their own shopping club, which shields discounted products from being visible to everyone online. This protects the image and price perception of the brands as high quality.

For example, Zalando Lounge in Europe is fashion platform Zalando’s shopping club which offers up to 80 per cent discounts on premium brands via the platform. To protect the brands, Zalando Lounge is subscription based with only members able to see the offerings.

Additionally, campaigns are limited in time and play on the scarcity, while still using high quality visuals and merchandising. Zalando Lounge has become a considerable part of the Zalando’s overall business. It not only leverages the end-of-season inventory from Zalando’s platform, but also has dedicated buying and planning teams working closely with key strategic partner brands on SMUs (Special Make Up Products) for the off price channel.

These are great examples indicating that off price does not need to be cheap in appeal and can be a considerable business opportunity that is even more crisis-prone than full price retail.

In conclusion, off price segments are no longer a scramble for a discount, instead they can be vital components of an overarching operating model to keep products moving. With more opportunities available from retailers, brands can ensure their image is protected, while building new revenue streams and de-risking their business.

Mitch Bittermann is executive vice president for Asia E-Commerce at TMX.