Packaway Inventory

A sourcing strategy where off-price retailers buy excess brand-name merchandise out of season and store it to sell later.

Packaway inventory is a specialized supply chain and sourcing strategy used primarily by off-price retailers. Under this model, companies purchase high-quality, brand-name closeout merchandise from manufacturers or department stores during off-season periods when prices are deeply discounted. Instead of placing these items on store shelves immediately, the retailer stores them in distribution centers and releases them to stores when the appropriate season arrives. This strategy allows retailers to secure premium goods at a fraction of their original cost, which helps drive high merchandise margins and maintains a fresh, opportunistic assortment of goods that attracts bargain-hunting consumers. For investors, the level of packaway inventory on the balance sheet is a key indicator of future gross margin potential and supply chain flexibility. While a high level of packaway inventory can insulate a retailer from future supply shortages or cost inflation, it also ties up working capital and carries storage costs. Conversely, a low level of packaway inventory reduces holding costs but may expose the retailer to inventory scarcity if closeout opportunities dry up. Analysts track this metric to gauge whether a retailer has bought ahead of inflation or is over-indexed on slow-moving merchandise.

An off-price retailer purchases $50 million worth of premium winter coats in April at a 70% discount from a manufacturer's canceled order. The retailer holds these coats in its distribution centers as packaway inventory until October, when they are shipped to stores and sold at a high merchandise margin.