How inventory mistakes hampered City Chic’s half-year earnings

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ty around key dates – such as Black Friday, Cyber Monday and the Christmas and Boxing Day sales period – which impacted its gross margin.

But Brian Walker, the founder and CEO of retail consultancy The Retail Doctor, believes the results are a reminder of the importance of retail fundamentals.

He told Inside Retail that fashion customers are known for moving easily between brands. As such, brands must be diligent about constantly developing new products and having the right pricing strategies in place, with inventory levels that are linked to forecasted sales. 

He said the market will punish brands that get any of this wrong.

“[One of the] most sizable things to get wrong [is] your inventory requirements. There’s plenty of businesses that the market has punished for the same set of reasons,” Walker said.

He said that City Chic is in an inventory hole, with a low stock turnover rate compared to competitors.

According to The Australian Financial Review, the brand is targeting an inventory balance of $125 million to $135 million by 30 June, and It expects to have around $170 million worth of stock at the end of the year.

“It [looks like City Chic] has over invested in inventory to make sales it didn’t realise,” Walker said.

Dr Louise Grimmer, a senior lecturer in retail marketing at the University of Tasmania, believes City Chic’s results reflect a wider issue across the apparel sector – the increase in people working from home.

“It is obviously impacting footfall in retail centres and reducing the numbers of unplanned and spontaneous store visits. I don’t think it reflects any particular trend specific to plus-size fashion sales,” Grimmer told Inside Retail.

“The other issue of course is the tightening economy, and the pressures on discretionary spending for Australian households. Many workers are having to make difficult decisions about how and where to spend money.

“For many people, updating their wardrobe is not a priority when household budgets are tight.” 

With regard to sales events such as Black Friday and Boxing Day, Grimmer believes the market is saturated with promotions, and shoppers are spoiled for choice. As such, retailers need to be strategic and forward-thinking in how they participate.

She said that these events might not be suitable for every retailer – as demonstrated by retailers electing not to participate, and using their non-participation as part of their marketing messaging.

However, Walker contends that these promotional calendar events are unlikely to be a primary reason behind City Chic’s performance. Rather, he said that feedback and activity was healthy for retailers toward the end of 2022.

A high watermark

With regard to online sales in the first half of FY23, many businesses can expect to see a drop compared to the prior corresponding period, when some parts of Australia were still experiencing Covid lockdowns. 

“People talk about the renaissance of physical retail. It [was] never the renaissance – it simply couldn’t open,” Walker noted. “Online was always a subsidiary channel to physical retail. [City Chic] were coming off a high watermark when shops were closed, and I’m not sure they signalled that to the market.”

In terms of getting rid of excess inventory, he said the brand needs to figure out what is core compared to what is seasonal, and work out its ageing profile and a strategy to clear it out.

He said the brand then needs to revisit the operating processes that led to the situation, and talk a longer game.

Walker added that maintaining a global presence amid Covid-19 would have been particularly difficult for City Chic, with management less able to travel and visit sites in each of the key markets. He said that only the brand is in a position to tell whether these markets are a part of its future plans.

“[The model] appears scalable, but the results will tell the ultimate story,” he said.