Woe for stores as shop­pers look else­where for in­spi­ra­tion

The Denver Post - - BUSINESS - By Anne D’In­no­cen­zio

Erica Dao used to shop at malls once a month, look­ing in stores and see­ing what the man­nequins dis­played. Now, she mainly looks for in­spi­ra­tion on so­cial me­dia.

“I dis­cover brands through In­sta­gram,” said Dao, 33, of St. Paul, Minn.

El­iz­a­beth Troy says she was the “queen of sales,” go­ing through dis­counted items at J. Crew and Banana Re­pub­lic stores at malls near where she lives in Rich­mond, Va. But her go-to source has be­come the on­line sub­scrip­tion ser­vice Stitch Fix, which lets her try on clothes at home and de­cide what to keep.

“I al­most never go out to buy now,” says Troy, 50.

Those kind of shifts il­lus­trate the way peo­ple are chang­ing how they buy cloth­ing. Shop­pers aren’t just show­room­ing at stores and then buy­ing the same items on­line if they can find bet­ter prices — it’s a more sig­nif­i­cant sep­a­ra­tion from the mall.

The num­ber of “dis­tressed” re­tail­ers — those with cash prob­lems and poor credit pro­files that are fac­ing strong com­pe­ti­tion — is at the high­est rate since 2009, says Moody’s In­vestor Ser­vice.

“Re­tail is in­creas­ingly be­com­ing bor­ing,” said James Rein­hart, CEO of the used-cloth­ing mar­ket­place thredUP. He says much of the mer­chan­dise at stores is ho­moge­nous, while on­line “each day there’s a whole new as­sort­ment.”

Depart­ment stores make reg­u­lar an­nounce­ments about the next way they’re go­ing to win cus­tomers back, like of­fer­ing more ath­letic-in­spired clothes or adding tech ar­eas. But they’re fight­ing a mar­ket in which peo­ple al­ready are buy­ing fewer clothes, spend­ing on­line or at dis­coun­ters when they do, and de­mand­ing more per­sonal and con­ve­nient ways to buy.

Brands like Stitch Fix and Bono­bos of­fer cu­rated se­lec­tions based on peo­ple’s pref­er­ences, while com­pa­nies like thredUP cap­i­tal­ize on shop­pers’ in­creas­ing will­ing­ness to buy sec­ond­hand items from mall brands like J. Crew, An­thro­polo­gie and Ath­leta at big dis­counts. Deloitte es­ti­mates that the na­tion’s top 25 re­tail­ers have lost $200 bil­lion to the smaller en­trants to the mar­ket over the last five years.

“These in­ter­net-rooted busi­nesses are con­nect­ing so well with con­sumers,” said Mar­shal Co­hen, chief in­dus­try an­a­lyst at mar­ket re­search firm NPD Group Inc. “They’re of­fer­ing per­son­al­iza­tion. They of­fer great value, qual­ity ser­vice and a unique look. This is some­thing that the ap­parel in­dus­try has been ig­nor­ing, but con­sumers are grav­i­tat­ing to­ward them. And they’re be­com­ing a big threat.”

While U.S. cloth­ing sales in­creased 3 per­cent over­all to $218.7 bil­lion last year, depart­ment stores and na­tional mall-based chains saw a drop of 4 per­cent, says NPD. Dis­coun­ters en­joyed a 1 per­cent in­crease, and off-price stores like T.J. Maxx and Ross saw sales rise 5 per­cent.

Clothes are also a smaller part of peo­ple’s per­sonal spend­ing. In Jan­uary 1990, Amer­i­cans spent 5.2 per­cent of their over­all ex­pen­di­tures on clothes and shoes. That com­pares with 3 per­cent in Jan­uary 2017, ac­cord­ing to an anal­y­sis by Michael P. Niemira, prin­ci­pal at The Re­tail Econ­o­mist re­search firm.

Even so, re­tail space rose to 7.76 bil­lion square feet in 2016 in 54 U.S. metropoli­tan ar­eas, the In­ter­na­tional Coun­cil of Shop­ping Cen­ters said. Richard Hayne, CEO of Ur­ban Out­fit­ters, likens the re­tail in­dus­try to a hous­ing bub­ble.

“We are see­ing the re­sults: doors shut­ter­ing and rents re­treat­ing,” Hayne said af­ter the com­pany re­ported dis­ap­point­ing fourth-quar­ter re­sults.

“Dig­i­tal com­mu­ni­ties and so­cial me­dia are re­plac­ing store­fronts and tra­di­tional ad­ver­tis­ing as a pre­ferred means by which brands and cus­tomers are con­nect­ing,” Hayne said, not­ing Ur­ban Out­fit­ters’ 7 mil­lion In­sta­gram fol­low­ers.

The on­line star­tups have their own ways of reach­ing shop­pers.

Ja­son Hairston started his hunt­ing cloth­ing and gear brand KUIU by blog­ging, and said he gen­er­ated $500,000 on the first day in busi­ness based on in­ter­est through the blog. He said by skip­ping the store step, his Dixon, Calif.a-based com­pany can of­fer higher-qual­ity prod­ucts at the same price.

It was on so­cial me­dia that Dao dis­cov­ered the on­line brand Ever­lane and liked its sim­ple but mod­ern looks. “I am try­ing to find some­one that ap­peals to me,” she said. “It’s not, ‘Oh, ev­ery­body is do­ing this.’ It re­flects my val­ues. It re­flects my per­sonal style.”

Bill Taub­man, chief op­er­at­ing of­fi­cer at mall op­er­a­tor Taub­man Cen­ters, ex­pects more store closures. But as much as shop­pers grav­i­tate to­ward on­line brands, he has doubts about their sus­tain­abil­ity.

“Cus­tomers for­get about them very quickly,” he said. “That’s why the in­ter­net guys are think­ing of open­ing stores.”

In­deed, on­line brands like Bono­bos, jeweler Blue Nile and eye­wear seller Warby Parker have been set­ting up show­rooms. Even KUIU plans a 30-city tour with an 18-foot trailer.

The hy­brid model is gain­ing ground, but on­line re­tail­ers are also fig­ur­ing out whether to go with tra­di­tional stores or show­rooms where shop­pers try on clothes and then have their pur­chased de­liv­ered. “We quickly dis­cov­ered in the test­ing days of the Guideshop con­cept that guys don’t need that in­stant grat­i­fi­ca­tion of walk­ing out of the store with some­thing right away,” said An­to­nio Nieves, chief fi­nan­cial of­fi­cer at Bono­bos.

Bebeto Matthews, The As­so­ci­ated Press

J.P. Grant, shop­ping for cloth­ing at the Bono­bos brand’s Guideshop in New York, re­ceives some as­sis­tance from guide Rey­naldo Sanchez. Be­low, Sanchez puts in­for­ma­tion for Grant into the store’s cus­tomer web­site.

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