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U.S. Apparel, Footwear Spending on Decline

Consumers are expected to cut their spending in the two categories to $344 billion by 2020, down from $351 billion in 2010.

The Baby Boomers and Generation Y pose a $7 billion conundrum for the fashion industry.

This story first appeared in the May 29, 2012 issue of WWD.  Subscribe Today.

U.S. apparel and footwear consumers are expected to cut their spending in the two categories to $344 billion by 2020, down from $351 billion in 2010, according to projections from Euromonitor.

It’s not that consumers are going to be spending less overall. The research firm predicted shoppers would boost annual expenditures by $3 trillion over the decade to $11 trillion, with increases of $730 million in spending for health goods and medical services, $412 billion for leisure and recreation and $137 billion in communications.

People are more pleasure orientated in their budgets and I think that it’s in retaliation for the prices they have to pay for things like health care,” said Kit Yarrow, a consumer psychologist at Golden Gate University.

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She summed up the attitude like this: “When I’m going to buy something for fun, it’s damned well going to be fun. It’s going to feel really good. I want emotional impact for what I’m buying.”

And consumers also have new outlets for shopping energy.

“People, especially young people, get so much pleasure from their technology,” Yarrow said. “It’s such a creative outlet for them and it’s also a way to identify with different groups of people and so it’s taking up some of that money that would have been spent on fashion.”

Hana Ben-Shabat, a partner in A.T. Kearney’s retail practice who analyzed the Euromonitor data for a recent report on consumers, said changes in fashion spending are being driven by Baby Boomers entering retirement and focusing on “experiential” spending, while Gen-Y shoppers come of age with their own priorities.

“These two groups of consumers are going to make a big change in how people shop for clothing,” Ben-Shabat said.

They are also playing into longer-term trends in how consumers spend their discretionary dollars. Citing government statistics, Ben-Shabat said apparel expenditures as a percentage of disposable income fell from about 6 percent in the Seventies to 4.9 percent in 1988 and 2.9 percent in 2010.

“The category has been very promotional over the last few years and we’ve seen that everywhere,” she said. “Maybe total demand is not going to decline volumewise, but we’re just not going to get the same money for it because it’s highly promotional. If you want to maintain traffic, promotions are still a way to move people in.”

For Boomers, though, there might be almost no level of promotion that will do the trick.

“As you retire, you need fewer clothes or different clothes, but casual clothes are cheaper than suits,” said Christine Chen, senior investment analyst at investment firm Ashfield Capital.

The fashion retailers that will win in this environment will be in the luxury space or providing some sort of value on the other end, she said.

Retail, perhaps because of these demographic and societal shifts, is in a period of serious flux. Even retail staples like price promotions are being seriously reexamined. Chief executive officer Ron Johnson’s overhaul at J.C. Penney Co. Inc. eliminated coupons at the 1,100-door chain. Other retailers, including Ann Inc. and Express, are trying to get customers away from lower price points while solidifying their fashion credentials.

The departure of the Baby Boomers would be bad enough for fashion, which has relied on their spending for decades — just look at the travails of The Talbots Inc. — but they start to exit the workforce just as household incomes plateau.

“That’s just a brutal squeeze play on the industry,” said Jonathan Low, a partner and cofounder of consulting firm Predictiv. “Spending on apparel and footwear starts to decline as people get older, but you can see spending on leisure activities increasing. The moderating influence is immigration to the U.S., which is why it won’t be declining further.”