City Chic unveils clearance sale to clear unwanted inventory as consumer softness sticks

The plus-sized women’s fashion retailer is looking to clear excess stock of dresses and tops as consumer demand wanes amid cost of loving pressures.

Clothing and accessories retailer City Chic has conceded its bloated stock levels are too much given the current economic climate and will hold a fire sale to make room in its crowded warehouses.

It comes as sales across its core markets in Australia and the US have fallen by 10.8 per cent and 21.6 per cent respectively, with the retreat in demand by its customers resulting in more stock in the store and in its warehouses.

Now, City Chic will act to rejuvenate its fashion stock and prepare for a better 2024.

This “inventory unwind” – as the retailer has described it – will come at the expense of margins and profits, but it will greatly reduce its inventory holdings and allow the plus-sized women’s fashion chain to enter 2024 with new clothing to better compete in the market.

In a trading update provided to the market on Monday, City Chic revealed the worsening trading conditions it was facing as its core customer base had pulled back, with group sales for the 45 weeks to May 14 down 15.2 per cent to $262.2m.

Across January and February, revenue dropped 17 per cent against the previous corresponding period with increased promotional levels in line with competition and as City Chic cleared product ahead of its warehouse consolidations program.

In Australia and New Zealand, sales for the 45 weeks of fiscal 2023 were down 10.8 per cent; in the US sales were down 21.6 per cent; and in Europe sales were down 8 per cent.

Shares in the retailer plunged to a five-year low after the poor trading update to be down more than 10 per cent. The company was a market darling during the pandemic and surged to a record high of nearly $7 in early 2021 but a series of missteps – led by a decision to invest in huge inventory levels – has shaken the company’s balance sheet and sent its share price hurtling downwards.

City Chic shares last year collapsed after it revealed it had bought up huge amounts of fashion and accessories stock in preparation for a rebound in consumer sales and to safeguard against supply chain issues, but in the face of weakening conditions and sliding sales that bloated inventory switched to becoming a noose around its neck and a strain on its balance sheet.

Shares in City Chic are down 84 per cent in the past 12 months.

City Chic said on Monday it was well progressed on a strategic review, focusing on its online and international businesses with the assistance of external advisers GNG Partners to determine the most efficient pathway for returning to profitable growth, having regard to current economic conditions and resulting pressures on demand in its demographic.

As a result, City Chic had decided to accelerate its inventory unwind with a focus on Europe, given the additional inventory in that market. This is expected to drive cashflows and reduce the inventory balance at the end of 2023 to less than $100m.

City Chic said it anticipated a return to more normal promotional activity into the fourth quarter with the change of season.

Inventory is expected to reduce further through fiscal 2024 as the group continues to drive promotional activity, with margins likely to remain soft through the first half, City Chic said.

The retailer expects to have a stronger inventory position from the second quarter of fiscal 2024, with “newness” ready for the key trading period, and to be clean into the second half of the year.

“Operating conditions have remained challenging, resulting in the continuation of strong promotional activity across the market. We responded to drive demand and clear excess inventory lines, focusing on converting inventory into cash while reducing costs,” City Chic chief executive Phil Ryan said.

“The strategic review will build on the actions we’re taking to strengthen our balance sheet, streamline our operations globally to return to a more agile operating model, improve margin and logistics as a percentage of revenue and reduce our cost base to return to profitable growth.”

Other actions City Chic has taken include closing seven warehouses with two further closures due in the next three months, which will deliver annualised savings of about $10m.

A new freight forwarder contract should cut costs in that area by $1m. The fashion retailer also would focus the range on high-value products and optimising customer choice, while also revising its product sourcing strategy to return to a more agile supply chain.

City Chic also has announced that with the ongoing support of its lender the current $46.5m debt facility has been amended, which will result in a staged reduction of the facility limit to $21.5m by the end of fiscal 2024.

Earlier this year, retail billionaire and entrepreneur Brett Blundy lifted his stake in City Chic to 9.9 per cent and he could pounce on the company as its share price weakens further and it becomes a cheaper takeover prospect.

Shares in City Chic ended down 0.5c to 38c

Originally published as City Chic unveils clearance sale to clear unwanted inventory as consumer softness sticks