US Ap­parel Re­tail Mov­ing Up­wards as Shop­pers are Back to Buy­ing

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In the last few years, the term ‘re­tail apocalypse’ has of­ten been used to de­scribe the cur­rent state of US re­tail, but from the re­cent up­swing in re­tail, it would seem that the ex­pres­sion is an ex­ag­ger­a­tion of the sit­u­a­tion. No one can deny that re­tail­ers have faced tough chal­lenges and still con­tinue to do so, but strong US re­tail sales over the past three months – par­tic­u­larly for ap­parel – has come as a boom for the econ­omy, clearly in­di­cat­ing that shop­pers are back in the mar­ket with fresh zeal!

The buzz is back in re­tail and the re­cently re­leased Gov­ern­ment data con­firms the move­ment, an­nounc­ing that US re­tail sales rose about 6% year-on-year in the Maythrough-July pe­riod, which roughly lines up with the sec­ond fis­cal quar­ter for re­tail­ers. More en­cour­ag­ing is the fact that sales in cloth­ing and cloth­ing ac­ces­sories stores rose 6.6%, higher than the over­all re­tail sales av­er­age. In July alone, US re­tail sales in­creased 0.4% over June sales and 4.9% Y-o-Y, ac­cord­ing to the Na­tional Re­tail Fed­er­a­tion (NRF). On­line and other non-store sales climbed 11.3% Y-o-Y, the NRF noted.

What is ex­cit­ing is that con­sumers con­tin­ued to spend de­spite fears over the es­ca­lat­ing trade war. In fact, the NRF has re­vised its an­nual fore­cast for 2018 based on the cur­rent flip in sales. The or­gan­i­sa­tion now ex­pects re­tail sales for the year to grow at least 4.5% over 2017, rather than its orig­i­nal pre­dic­tion of 3.8% to

4.4% growth. “The num­bers mir­ror the econ­omy, which is in very good shape,” said NRF Chief Econ­o­mist Jack Klein­henz, ad­ding, “Con­sumer fun­da­men­tals re­main healthy and con­tinue to pro­vide where­withal for con­sumers to drive do­mes­tic eco­nomic growth.”

Re­tail an­a­lysts be­lieve that this up­ward swing in re­tail has been brought about by a com­bi­na­tion of many pos­i­tive rea­sons. Higher wages, gains in dis­pos­able in­come, a strong job mar­ket and record-high house­hold net worth have all set the stage for very ro­bust growth in the na­tion’s con­sumer-driven econ­omy.

The pos­i­tive sen­ti­ments have come at a time when re­tail­ers were look­ing for sur­vival strate­gies. NRF, in par­tic­u­lar, be­lieves that this is op­por­tu­nity time for re­tail­ers, at­tribut­ing its up­grade in growth to bet­ter-than-ex­pected con­sumer spend­ing in H1 of the year. How­ever, ad­ding a note of prag­ma­tism, Klein­henz said, “Un­cer­tainty sur­round­ing the trade war and high­erthan-ex­pected in­fla­tion due in part to in­creased Crude Oil prices could make con­sumers cau­tious dur­ing the Fall sea­son.”

Off-price re­tail­ers are the best placed for growth…

Co­in­ci­den­tally, the re­tailer growth in­di­ca­tors that have come in roughly line up with the sec­ond fis­cal quar­ter for re­tail­ers and re­sults an­nounced are en­cour­ag­ing. The best re­sults have come in from off-price re­tail­ers that are grow­ing on the ‘value-propo­si­tion’ ide­ol­ogy that they rep­re­sent. Dol­lar Tree, TJX and Ross Stores cur­rently lead the seg­ment. The ob­vi­ous growth has en­cour­aged Dol­lar Tree to open more than 600 stores in 2018. This dis­count growth could be at­trib­uted to con­tin­ued thrifty mind­sets fol­low­ing the re­ces­sion, stag­nant wages, etc. And con­sumers may in­creas­ingly en­joy a ‘trea­sure hunt’ ex­pe­ri­ence of find­ing the best deals.

In fact, off-price re­tail­ers have steadily gained mar­ket share at the ex­pense of their full-price ri­vals in re­cent years. Ear­lier, in May, man­age­ment at both TJX and Ross Stores had shown con­cern about the late start to Spring, fear­ing that it would neg­a­tively af­fect sales in the first quar­ter. Nev­er­the­less, both off-price lead­ers posted solid 3% comp sales gains in Q1, beat­ing their fore­casts. Based on this, some re­tail watch­ers pre­dict that TJX and Ross Stores could re­port Q2 comp sales gains of around 5% or even higher.

The jump­ing stocks of re­tail­ers like Wal­mart on Wall Street is again a pos­i­tive sign, and an­a­lysts at Wall Street ex­pect some of the bricks and mor­tar re­tail­ers to be around and go­ing strong for the next few years. Wal­mart, the largest re­tailer in the US, recorded US $ 318.5 bil­lion in rev­enue and US $ 495.8 bil­lion in net sales in FY 2018. Ac­cord­ing to com­pany sources, Wal­mart’s US com­par­a­tive sales in­crease in Q2 was driven by an in­crease in traf­fic and ticket growth. While cus­tomer traf­fic in­creased 2.2%, ticket size in­creased 2.3%.

Growth in on­line re­tail con­tin­ues to drive shop­ping…

The ap­parel and ac­ces­sory buy­ing on e-com­merce today, ac­counts for nearly 15% of to­tal on­line pur­chases and grew by 0.8% in July, the big­gest player of course be­ing Ama­zon. Ac­cord­ing to e-Mar­keter’s lat­est fore­cast on the top 10 US e-com­merce re­tail­ers this year, the on­line shop­ping jug­ger­naut will cap­ture 49.1% of the mar­ket, up from a 43.5% share last year. Sig­nif­i­cantly, Ama­zon now con­trols nearly 5% of the to­tal US re­tail mar­ket (on­line and off­line). “The con­tin­ued growth of Ama­zon’s Mar­ket­place makes sense on a num­ber of lev­els,” e-Mar­keter Prin­ci­pal An­a­lyst An­drew Lips­man said. “More buy­ers trans­act­ing more of­ten on Ama­zon will nat­u­rally at­tract third-party sell­ers. But be­cause third­party trans­ac­tions are also more prof­itable, Ama­zon has ev­ery in­cen­tive to make the process as seam­less as pos­si­ble for those selling on the plat­form.”

The op­por­tu­ni­ties in e-com­merce is huge; and while in 2016, re­tail e-com­merce rev­enues from ap­parel and ac­ces­sories sales amounted to US $ 72.13 bil­lion, the same is pro­jected to in­crease to US $ 116.3 bil­lion in 2021. The trend now is not multi-chan­nel but omni-chan­nel where ev­ery re­tailer has to be ev­ery­where with a strat­egy that syn­chro­nises and sup­ports sale at all plat­forms si­mul­ta­ne­ously.

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