This meant, according to the retailer’s owner, Associated British Foods, that Primark took a huge £284m hit for unsold stock. And with no prospect of shifting it any time soon, and every prospect that it will be out of fashion by the time the lockdown ends, what will they do with it all?

Primark’s situation is extreme – few businesses that enjoy such nationwide high-street coverage have no online outlet – but even retailers that combine physical stores with a strong e-commerce model, particularly those in fast fashion, are struggling to manage their excess inventory. In early April, retailers including Peacocks and Arcadia were reported to have stopped taking deliveries to their warehouses because they were full, while Next had to close its online store for nearly three weeks at the height of the crisis to reorganise warehouses to protect staff from coronavirus infection – and then find additional storage facilities to cope with its mountains of stock.

“It’s a tricky spot to be in,” said Sophie Lund-Yates, equities analyst at Hargreaves Lansdown. “No retailer wants a huge pile of clearance items at the best of times. And with trading expected to be subdued for a while even after lockdowns are lifted, shifting all those extra summer T-shirts is going to be a more difficult task than usual.”

UK retailers are sitting on around £2bn of excess stock, according to Professor Joshua Bamfield, director of the Centre for Retail Research. “Fashion is the most problematic area,” he says. “It’s the most seasonal sector, but it’s also planned well in advance – stores don’t take delivery of their spring ranges the day before the new season starts, so will have had stock sitting there a while. And even the online stores are taking a huge hit – everyone is at home so they’re in their pyjamas or in 10-year-old clothes. They don’t need new ones.”

But if nobody needs this extra stock, what do you do with it? Discounting is one option – there’s expected to be a flood of flash sales as retailers bid to offload excess inventory for knock-down prices either to customers or clearance stores.

“Next will likely move a lot of its unsold inventory generated over the past few months to its clearance store, Choice,” predicts Fashion Retail Academy chief executive Lee Lucas. “Some retailers such as Monsoon hold factory and staff sample sales a few times a year and others will try to sell on to third-party retailers such as TK Maxx.”

But discounting is not a straightforward option. “Stores need cash flow, and selling cheaply is one way to generate that – but they need profits too,” says Bamfield. “Shops are likely to start reopening soon, but coronavirus has scuppered the spring fashion season, so it’s difficult to sell that stock off cheaply when you’ve got your summer stock ready to roll out at full price. And despite people having less money to spend, the high-end luxury brands in particular will be very reluctant to cut prices because it risks devaluing that brand.”

There are other options: some retailers will try to repurpose their stock throughout the year and into spring/summer 2021 or try to claw back some of the cost by promoting rental fashion. Others, though, may have no choice but to find ways to write it off. “Any stock that retailers are finding particularly hard to sell after lockdown will likely be donated to charities across the country,” says Lucas.

Socially distanced shopping

Even as we ease out of lockdown over the next few months, decreased demand will force stores to examine their approach to inventory management, believes Bamfield. “There’ll be a new-normal, social-distancing way of shopping, with fewer people allowed in stores,” he says. “People won’t be casually browsing but buying specific items, so the demand might not be there for that summer dress, and stores may look at shifting stock levels towards more basic items such as bras or tights.

“Aggressive retailers in all sectors are easing the pressure on themselves by offering less choice – and I think they will stick with that in the months ahead, although you need supple, flexible supply chains to make it work.”

Richard Lim, CEO of Retail Economics, is concerned that this new normal could have lasting implications for the sector. “One of the biggest challenges for retailers is modelling levels of demand moving forward and finding the appropriate level of discounts. The pressure will be on retailers to turn inventory into cash and stem the depletion of working capital.

“However, the way consumers will react to the reopening of stores remains uncertain. They will likely remain anxious about shopping for discretionary items and there could be a significant gap between shoppers’ expectations of the retail experience and the reality of browsing with social distancing measures in place. Being greeted with mask-wearing shop assistants, disinfecting shelves and guarding closed changing rooms could risk undermining the whole retail experience, further fuelling the shift to online.

“Many clothing retailers were already plagued with underlying issues heading into the pandemic. Further administrations could lead to distressed discounting piling further downward pressure on prices.”

Impact on revenue 

Marks & Spencer recently warned its shareholders that excess inventory would affect profits. “There will be a substantial impact on Clothing and Home revenue at the very least (in the next few months),” it said in a statement. “Although it is possible that this may ease as we get into summer trading, margins are likely to be severely impacted by the surplus of unsold seasonal stock and probable clearance activity in the marketplace. We are therefore taking all possible steps to defer supply.”

Demand will decrease across the board, according to retail consultant Richard Hyman, which will impact the entire sector; but some stores will prove more resilient than others. “Regarding stock levels, we know demand will shrink but none of us knows by how much,” he says. “Directionally everyone will lower prices and trade in a materially smaller market than they were, because of a reduction in capacity and a reduction in spend. Everyone will be hit, but it’s not a democratic system – some will face the pressure better than others.”

Hyman believes the crisis and the resulting fallout will make retailers shift their focus and their stock management into a longer-term strategy. “This virus will put an end to short-termism as businesses have to start aligning the way they look at things with how their particular markets trade,” he says.

“Retail entered this crisis in bad shape. The industry was bloated with too many stores, too many websites and oversized ranges, the result of decades of chasing growth at any price. Many firms’ inventory crisis is because they haven’t balanced revenue with cost – in any business, the former determines the latter, determines what is needed, and what is not needed. That means listening to your core customer demand and editing your ranges.”

Need for a clear customer focus

Those who were already getting this right before coronavirus, in terms of business models and stock management, will be the ones that will survive and thrive, Hyman believes. “Selfridges, Costco, TK Maxx, Reiss, B&M, Home Bargains – all have very clear customer focus which in turn determines ranging. They have resisted the lure of expanding their offers to attract a wider customer base and generate incremental sales, because they understand that would adversely impact stock turn, inventory carrying costs, availability, and lead to higher mark-downs, all hitting margins.”

This is why he – and other retail analysts – believes Primark will survive not shifting any stock at all for three months.

“There’s a good reason Primark isn’t online, and that’s because so much of its stock is so cheaply priced it’s not worth their while. The virus hasn’t changed that good reason. AB Foods is a family business which takes the long view. They sell fast fashion, but most of their stock is basics and they can shift that at any time. If the business doesn’t take money for a while, so what?”

And as demand remains low for the foreseeable future, other retailers will need to reassess their own approaches to stock management – although for some, says Hyman, it may already be too late.

“The fiscal stimulus packages are propping up businesses, but it means many are already bust but don’t know it yet,” he says. “Many staff who are furloughed are actually unemployed but don’t know it yet. This suspension of all the rules cannot go on forever. When the cost regime kicks in again, which it must, and businesses have to honour their debt, we will see the truth of Warren Buffet’s famous quote: ‘It’s only when the tide goes out that you see who’s been swimming naked.’”