WWD List: 15 Fashion Companies Up Capex

After some belt-tightening last year, retailers are boosting their capital expenditures this year, seeking to keep up with consumers.

Reinvention isn’t cheap — but fashion can’t afford to stay the same.

After a lean year in 2017, when many retailers hit what might have been rock bottom and closed thousands of stores, longer-term spending plans are up at most of the large U.S. apparel companies.

A WWD list of 15 retailers and brands boosting their capital expenditures this year showed an overall increase of 18 percent. Leading the list with breakaway spending were Michael Kors Holdings and Ralph Lauren Corp., with plans for respective increases of 108 percent and 70 percent this year. (Not everyone is feeling so flush: J.C. Penney Co. Inc., for instance, cut its planned capital expenditures this year to $375 million, down from $395 million in 2017.)

Capital expenditures are planned in advance and reflect longer-term spending on property, equipment and other tangible assets. Public companies detail their planned expenditures for the year ahead in regulatory filings, and where the money goes often says much about where they see their future.

Plans for this year were laid in late 2017 as business started to finally pick up with fall spending gains that flowed into the Christmas rush and extended into the first quarter.

“The capex spend is a reflection of the optimism that started building in the back half of last year,” said Bill Lewis, a director of AlixPartners’ retail practice.

Lewis said retailers are putting money into “what they’re calling customer experience.”

“The ones that are doing it right are allowing their customers to experience their brand or their retail services in any way they want,” he said.

For some, that’s building or expanding their buy online, pick up in store capabilities, while for others it might mean adding more delivery options.

Some of it is what Lewis described as “catch up investments” after lean times.

“They’re feeling better about the investments,” Lewis said. “They’re just going for it.”

One company clearly going for it now is Ralph Lauren.

The fashion group went into 2017 with plans to spend $300 million to $320 million, but ended up with capital expenditures of just $162 million, or 2.6 percent of revenues.

Chief financial officer Jane Nielsen told investors at a meeting last week that the company was going back to spending 4 percent to 5 percent of revenues, but would be allocating the funds differently than in years past.

“The last two years have been a test and learn philosophy,” Nielsen said. “We tested the small format stores…we’re doing the L.A. market test…we’ve tested RFID and are now ready to roll that out in a more significant way. We’re ready. We’ve tested these ideas. We know they return [on their investment].

“We are going to put our investments to face the consumer, to change their experience, to change the shopping environment, to change our digital environments, to add functionality there,” she said. “So if you think about where we were, flip it. We’re going to be about more than two-thirds consumer-facing and a little less than one-third on infrastructure and internally facing investments.”

Retailers have found a perhaps unexpected ally as they spend to modernize their businesses and compete in the age of Amazon. Investment across the sector is being supported by the tax reform package pushed through by President Trump just before Christmas last year.

While the particulars vary, the sweeping tax changes cut the corporate rate overall to 21 percent from closer to 35 percent.

Target Corp., for instance, added $1 billion to its capex plans for this year and is laying out $3.5 billion to invest in its stores and supply chains.

“The answer to the question ‘What are you going to do in light of tax reform?’ is simple,” said Catherine Smith, Target’s executive vice president and cfo, during a call with analysts in March. “We’re investing in our business and our team to support Target’s long-term sustainable growth. We first look to invest in projects that promise to generate long-term value, then we want to support our dividend… and finally, we look to return any excess cash [to shareholders].”

For retailers, how much goes to the business and how much goes back to shareholders could make all the difference.

Here, a look at 15 fashion companies spending more this year and where they’re putting their money, ranked by percentage increase in their planned spending.