Canadian clothing retailer Roots Corp. is heading into its busiest sales period with strong inventory levels and a "pack and hold" plan to deal with unsold merchandise.
The company's chief executive Meghan Roach said Tuesday the store's top selling season is the second half of the year, which typically accounts for about 70 per cent of annual revenue.
Roots is entering this peak period with "healthy inventory levels" — up 15 per cent compared with the same period last year— largely made up of core apparel collections that are "closely aligned with expected sales," she said during a conference call.
Higher inventory levels among some U.S. retailers have prompted concerns about unsold merchandise leading to widespread discounting, which erodes margins and profit.
"We're aware of market concerns about certain retailers' high inventory levels, which could lead to markdowns," Roots chief financial officer Mona Kennedy said on the call.
"At Roots we believe our inventory is less subject to potential markdowns."
The brand's apparel mostly consists of "timeless, limited fashion-risk products," which gives Roots the option to "pack and hold" excess inventory if necessary, she said.
This means any unsold merchandise at the end of the season could be put into storage until next year, when it will be placed back on store shelves.
It's a strategy that generally wouldn't work as well for fashion retailers that change their clothing collections drastically every season, but is an option for a retailer like Roots with more classic styles.
The company's core collections make up about two thirds of its inventory, making the pack and hold approach to unsold goods effective, Kennedy said.
"From a margin perspective, we remain disciplined with our promotional activities," she added. "We are continuing to focus on full-price selling."
Her comments came as Roots reported a $3.2 million loss in its latest quarter compared with a loss of about $1.2 million a year ago, even as its total sales rose more than 20 per cent.
The retailer said the loss amounted to eight cents per share for the quarter ended July 30, compared with a loss of three cents per share in the same quarter last year.
Sales in what was the company's second quarter totalled $47.8 million, up from $38.9 million a year earlier.
The increase came as corporate retail store and e-commerce sales rose to $38.5 million compared with $30.4 million a year ago, while partner and other sales totalled $9.3 million, up from $8.5 million in the same quarter last year.
During the quarter, Roots relaunched its 1980s Beaver Canoe brand, which features a diamond-shaped logo with a beaver and trees.
"The relaunch celebrates the retro trends we increasingly see in the marketplace, particularly the demand for vintage Roots logos and product," Roach said.
She said the relaunch was "highly successful" with more Beaver Canoe-branded products expected in 2023.
Meanwhile, the company's revenue growth in the second quarter was driven mainly by higher in-store traffic, Roach said.
Roots is also seeing "incremental improvement" in shipping times and freight costs, she said.
"The supply chain markets are improving, the rates have come down (and) the transit times have shortened," Kennedy added.
This report by The Canadian Press was first published Sept. 13, 2022.
Companies in this story: (TSX:ROOT)
Brett Bundale, The Canadian Press
