The economics of packaway

A seller disposing of end-of-season goods is paying for space, capital and management attention every month it holds them, and its realizable value falls as the season recedes. A buyer with cheap warehouse space and patient capital faces the same costs at a much lower rate. The gap between those two cost structures is the margin in packaway.

The deeper the seller's urgency, the wider the gap. This is why the largest packaway buys happen in gluts rather than in normal years.

Four things: warehouse space for twelve months or more, capital tied up for the same period, handling in and out, and the risk that the merchandise is less saleable when it comes back out than the buyer assumed. The first three are calculable. The fourth is judgment, and it is where packaway buyers differ from one another.

Because of that carrying cost, packaway only works at a buy price well below what the same goods would command in-season, and only in categories where a year does not matter.

Basics, outerwear, denim, commodity categories with stable specs, and anything whose design does not date visibly within a year. Fashion-forward product, licensed merchandise tied to an event, and anything with a printed date or season marker is a poor candidate.

Size composition matters here as much as anywhere else: a packaway lot weighted to slow-moving sizes carries its problem for an extra year, compounding the cost. The arithmetic is in lot valuation.