Why Leftovers from Last Season Might Get a Second Chance at Gap and Kohl’s

Retailers are using the same tactic.

Here’s the thing: Gap and Kohl’s, among others, are stuck with an excess of extra clothing that they can’t sell at current prices and don’t have a ton of room for it. They have a load. But instead of cutting prices to try to move inventory, they’ll just try to try again next year.

This is a strategy known as “gather and hold”. (Though I could call it “pack, hold, and pray that customers don’t catch wise.”)

Gap, for example, is hiding summer models that didn’t sell in 2022 and hopes to try again next year. Kohl’s holds an additional $82 million in inventory, including sleepwear and fleece, which it plans to retail for the holiday season.

Reason: Retailers have too much stuff because we as humans have been spending less on fun things like clothes as the cost of boring things like groceries, gas and rent has skyrocketed.

Clothing is also a particularly strange sector as people leave work from home and prepare to return to the office without knowing what the atmosphere will be like. We may not know what we want to wear, and we may not buy anything until we figure it out.

So why don’t Gap and Kohl’s just lower their prices? This is a tried and true way to move inventory and free up space, but it can also weaken the brand, explains my colleague Nathaniel Meyerson.

Or, as one industry analyst put it, “Promotion can be cheap today and very expensive tomorrow.”

Stocking is expensive and retailers run the risk of fashion moving forward and making old clothes look painfully dated. But if retailers hold on to the right things—your black T-shirts, your comfortable denim shorts—they might just be buying time. Heck, Gap could sell a two-year-old jersey for an even higher price if demand picks up again.

However, forecasting demand is a tricky game. On the positive side, consumer confidence appears to be picking up again after a three-month slump, according to new Conference Board research. And thanks to falling gas prices, Americans are feeling a little better.

Bearish: In general, Americans are still very worried about the state of the economy and think we may be heading into a recession. These perceptions are important because they influence how we spend, especially on clothes.

RELATED: Walmart, Target and Bed Bath & Beyond are also struggling with oversupply and lack of demand for items such as furniture, electronics, home furnishings and clothing. But it’s these categories that are in high demand in the second-hand market, according to an online resale report.

NUMBER OF THE DAY: 5%

US stocks ended their third straight session in the red on Tuesday after a short morning rally that quickly faded. Oil prices fell 5%, prompting a sell-off in energy stocks.

The Dow fell over 300 points, or 1%. The S&P 500 and Nasdaq fell 1.1%.

While oil led the decline, markets are still reeling from Fed Chairman Jay Powell’s sharp Jackson Hole speech on Friday that sent the Dow down more than 1,000 points.

MUSK GETS AN ADVANTAGE

Last week, when the world learned that a former senior Twitter executive had reported alleged security breaches, it was clear that Elon Musk and his legal team would try to use it to their advantage in court. Now we find out exactly how.

On Monday, Musk’s legal team tweeted a letter citing allegations made by whistleblower Pater “Maj” Zatko as further evidence that should allow Musk to back out of his $44 billion offer to buy the company. Musk’s lawyers also called Zatko into court to testify in the case.

Musk then further used Zatko’s claims on Tuesday to demand a full month of their October trial being delayed.

Twitter responded Tuesday with a pitch of its own, calling Musk’s argument “invalid and inappropriate.”

Quick Review: In case you took a nap here:

  • Musk is trying to back out of the deal because he says Twitter lied about some of its spam bot details. But the real reason, most likely, is that he realized that he was massively overpaying for the company, and fighting this in court is a way, if not to completely abandon the deal, then at least get a better price.
  • Twitter, which is unlikely to get a better offer elsewhere, wants the court to force Musk to close the deal.
  • The trial is scheduled for October.
  • Meanwhile, accusations from Zatko, the former head of the cybersecurity department, have been pouring on Twitter. Zatko, fired from the company in January, accuses Twitter of “flagrant deficiencies” in its cybersecurity defenses that could put users, investors and US national security at risk.
  • Twitter has criticized Zatko and has defended widely against his allegations.

BOTTOM LINE

Musk’s legal strategy now seems less successful than two weeks ago, before Zatko went public with his allegations, which were first reported by CNN and the Washington Post.

Prior to Zatko’s accusations, many legal experts said Twitter had the upper hand in the case. Musk’s basic claim that the spam account problem was a “significant adverse effect” that would exempt him from the agreement seemed like a stretch to many lawyers.

At the very least, Zatko inspires confidence and credibility that Musk, the serial exaggerated trash poster, lacks. By blowing the whistle on Twitter, Zatko may, for better or worse, give Musk an edge in the court of public opinion.

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