By  on July 13, 2011

Mass merchants’ viselike grip on value appears to be slipping.

As U.S. consumers cautiously return to spending during the slow-motion economic recovery, the nation’s discounters collectively experienced a 7.5 percent decline in apparel sales during the 12 months ended in April and saw their share of the U.S. apparel market drop below 20 percent, to 19.3 percent from 21.2 percent in the prior year, according to figures released Tuesday by The NPD Group, the Port Washington, N.Y.-based research organization.

The drop in discounters’ apparel sales, to $37.34 billion from $40.36 billion in the earlier period, came as every other major retail channel — led by specialty stores and including department stores, national chains, off-price retailers and factory outlets — experienced an increase in the category and either a flat performance or growth in apparel market share.

Analysts and other observers agreed that the drop in the discounters’ performance stemmed principally from the weakness of Wal-Mart Stores Inc.’s apparel operations and those of Sears Holdings Corp.’s Sears and Kmart operations, what is deemed a temporary retreat by Target Corp. and softness in the fairly basic apparel assortments of dollar stores. And they noted that, as consumers gingerly reassert their power as purchasers, they’re seeking the assurance they get from buying branded apparel, whether through national brands, exclusive brands or high-visibility private labels.

Wal-Mart’s stumbles in apparel have been well documented. According to the firm’s annual report, apparel slid to 7 percent of sales in its U.S. discount stores last year, or about $18.22 billion, from 8 percent, or $20.79 billion, in fiscal 2009, a nearly $2.6 billion surrender of sales in the category.

“Apparel has been a trouble spot at Wal-Mart for years,” said Craig Johnson, president of Customer Growth Partners, a research and consulting firm. “They say it’s a work in progress, possibly the longest work in progress since New York’s Second Avenue subway, but the last year or so, they’ve totally taken their eye off the ball. Anything beyond basics is being ceded to others.”

Marshal Cohen, chief industry analyst at NPD, described the drop-off among the mass merchants as “a big loss of momentum they gained during the heat of the recession. Even by promoting value, which in their words is ‘shop here, we have the lowest price,’ consumers have migrated away from this ‘lowest price’ to ‘better value.’”

Overall apparel sales gained 1.4 percent, to $193.2 billion from $190.61 billion, during the 12-month span, with specialty stores gaining ground, expanding volume to $62.85 billion from $59.86 billion, and extending their sector-leading market share to 32.5 percent from 31.4 percent.

Although down, mass merchants ranked second in volume, followed by department stores, up 2.6 percent to $25.96 billion in apparel sales with market share up to 13.4 percent from 13.3 percent, and national chains, which moved up 1.7 percent to $25.14 billion on an unchanged 13 percent share of market. Off-price retailers saw apparel sales rise 2.1 percent, to $18.42 billion, and their market share in the category tick up slightly to 9.5 percent.

Direct mail and e-tail pure plays saw their apparel sales drop 1.3 percent, to $10.4 billion, but online apparel sales overall grew 12 percent to $17.2 billion. Factory outlets’ apparel sales jumped 17.8 percent, to $3.98 billion, lifting their market share to 2.1 percent from 1.8 percent. Warehouse clubs also saw a significant pickup in apparel volume, growing 24.7 percent to $1.95 billion, with Wal-Mart’s Sam’s Club division being among the beneficiaries.

Citing the strong showing by factory outlets and warehouse clubs, Cohen noted, “Why did these channels achieve this kind of growth and factory outlets even beat out the online channel for sales growth? One word — value. Consumers are looking for brands they either already have, or that they trust. They want products that are tried and trusted and they don’t mind spending money on them.”

CGP’s Johnson said, “Apparel has always been a brand proposition and what is a brand other than a promise a company makes to a customer? You have a wide variety of players — Macy’s, Kohl’s, off-pricers and warehouse clubs, just to name a few — who are getting the job done with brands, whether others’ or their own. At Wal-Mart, the promise is a dollar sign, without the brand patina. Target tries to have a little of both and, from what we’ve seen since April, they’re getting a good response.”

Mark Montagna, senior analyst at Avondale Partners, also mentioned Kohl’s as a retailer who’d been building brand strength through exclusive partnership with designers such as Vera Wang and its upcoming tie-in with Jennifer Lopez and Marc Anthony.

“Brands do seem to be driving the process and making a bigger difference,” he said. “If you look at the stocks of companies with important apparel brands — Polo, PVH — they’re doing well. The off-pricers have constant freshness and brand names.”

Montagna views heightened brand awareness as a logical consequence of the current consumer mind-set. “The emphasis is still on survival,” he said. “People are holding on. It’s not like wages are going up or that unemployment has come down. We’re in a permanent shift towards value. If you offer fashion and you have the right fashion, you’re much less of a commodity player and that gives you some pricing power. People are looking for fashion and brands, but the price they’re willing to pay for that great fashion is a little lower than it was.”

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