The Sexy Off-Price Sector Has a Big Problem

An online marketplace thinks it has the solution

Author: Andria Cheng

June 16, 2017

Inventory is a high-stakes game in the retail industry, especially for the fashion sector.

“Inventory distortion,” or the disconnect between what consumers want and what retailers have in stores, including both out of stock and overstock situations, translates to $1.1 trillion in global lost sales opportunities, according to retail analyst firm IHL Group.

Across all the various retail segments, from groceries to electronics, the fashion industry bears the brunt of that inventory disconnect with nearly $210 billion at stake globally, IHL Group's Greg Buzek told eMarketer Retail.

Entrepreneur Ronen Lazar has a solution for the inventory problem.

“The difference between a good and bad year (for a clothing company) can be defined by how well they monetize excess inventory,” said Lazar, co-founder and CEO of Inturn, an online software platform that helps retailers and brands buy and sell excess inventory in the off-price sector. 

There was no visibility of the inventory position and the current demand. 

The industry's low-tech roots showed clearly in the way it tracked excess inventory. "Data was compiled in Excel spreadsheets and scattered in different places," said Lazar. "Buyers would look at the spreadsheet and try to figure out what it was they were looking at. Everything was done manually. There was no visibility of the inventory position and the current demand."

Indeed, buyers couldn't even see the apparel being offered.

Inturn's platform, launched in 2015, allows brands to connect with off-price inventory buyers in virtual private showrooms. Buyers see images of available products, quantities, vendor cost, wholesale price and suggested retail price. 

Buyers and sellers can negotiate in real time, reducing the sales cycle to days instead of weeks, Lazar said. "A sizable volume of goods” can be transacted in minutes, he said.

For the troubled fashion industry, that efficiency and reduction of turnaround time can mean a difference in moving an excess neon pink dress that’s still in season faster, potentially giving both apparel sellers and buyers time to sell to consumers at a higher margin, before it becomes aged inventory that may have to be cleared at a deep discount and worse yet, at a loss.

Lazar said Inturn has over 100 fashion suppliers, including “some of the largest in the world,” selling to “hundreds of” off-price retail buyers globally. He declined to give details about sales, except to say currently $500 million worth of inventory is being bought and sold on the platform.

“Inturn saw an opportunity to digitize the archaic inventory purchasing process with technology, automation and business intelligence,” said Bryan Ciambella, Principal of venture capital firm B Capital. “Off-price retail was missing a way for inventory to be transacted in real time on one platform that houses all data. Relationships in the off-price industry are extremely fragmented and Inturn's marketplace enables a networking tool to communicate and transact with new contacts.”

B Capital, co-founded by Facebook co-founder Eduardo Saverin, in partnership with Boston Consulting Group and its incubation arm BCG Digital Ventures, recently invested $22.5 million in Inturn, its first retail related investment in the US. The startup has raised a total of $36 million, including through other VC firms that have invested in brands including Dollar Shave Club, Casper, BuzzFeed and Warby Parker.

Getting inventory right is tough for the fashion industry because “they have to deal with color and size,” said IHL's Buzek. An average specialty retailer can increase sales by 9% if they fix the problem of either overstock or out of stock issues.

Off-price retailers have seen their sales grow an average of 7.2% per year over the past five years, more than double the 2.6% increase of the retail industry over that time, according to Euromonitor data.

Traditional clothing brands and retailers also have more unsold merchandise to get rid of these days as mall and other store traffic declined. Meanwhile, the rise of fast-fashion players like Zara and H&M also are eating into consumers’ wallet share. With bargain-hunting  increasingly a bragging right among consumers, that’s led to declined interest in shopping at department stores and other chains. 

The very appeal of the discount cycle and off-price segment hasn't been missed by traditional retailers, including Macy’s and Nordstrom, many of which are expanding their own off-price concepts.

“Outside of e-commerce, ‘off-price’ is the bright source of growth in retail,” said Gavin Teo, a partner at B Capital. “Each year, $250 billion of apparel and footwear is sold this way through channels like Ross, TJ Maxx and Burlington Coat Factory.”