The latest gyrations in the stock market and the endless chatter about a double-dip recession could not come at a worse time for the men’s wear industry.
With the lucrative fall season about to kick into high gear, the fear is that the negativity blanketing the airwaves may keep men from opening their wallets. The unemployment rate is still hovering around 9 percent, prices on commodities such as gas and food are up, and the housing market is still in the doldrums.
Since last fall, men’s wear has been the leading apparel category for most retailers around the country and men’s wear executives are biting their nails as fall goods hit the floors.
Last week’s July same-store sales numbers did nothing to assuage their fears. While the luxury sector continued its strong showing — Saks Inc.’s sales rose 15.6 percent, Neiman Marcus Inc.’s were up 7.7 percent and Nordstrom Inc. was up 6.6 percent — the middle market was muddled. Bon-Ton Stores’ comps fell 1.6 percent, while J.C. Penney Co. Inc.’s were up 3.3 percent. Kohl’s Corp.’s dropped 4.6 percent, while Target Corp. was up 4.1 percent.
Despite the uncertainty, industry observers are not expecting the latest financial downturn to have a significant impact on the men’s wear industry going forward. Although some of the momentum may slow, especially at the moderate end, they’re not expecting it to come to a screeching halt.
That’s the scenario the men’s wear industry is facing as it prepares to head to Las Vegas next week for the men’s apparel trade shows including MAGIC, Project, ENKVegas, MRket, Capsule and the PGA Expo.
Steve Pruitt, founder and senior retail consultant for Blacks Retail, said in the company’s most recent retail report that he is not expecting a double-dip recession, but if it happens, “it will affect the lower end of the market the fastest, and they are already struggling. [Better and luxury stores] will be the least affected. They are in a better position to manage this because they have been outpacing big-box retail in terms of growth over the past several months.”
Although Pruitt isn’t expecting a big downturn in the fall, the situation may become more precarious next year. “We’re coming to the end of a normal retail cycle,” he said. “They tend to run 24 months, and this fall should be the end of the rebound cycle. We saw gains in June, exceeding expectations, and we should see the same trend in July. Everything is indicating that fall will be strong as well.”
He said the situation in the U.S. today is very different than it was two years ago. “This time the markets are reacting to a purely psychological situation when it comes to the U.S. economy. Whether U.S. consumers hold back because of the psychological implications remains to be seen, but I don’t think it’s time to panic yet.”
He urged retailers not to “get sucked into the cycle of negativity, urging them to “continue to rely on positive instincts, and real-world numbers.”
But he also recommended stores employ a contingency strategy in case sales begin to slip. First, cut 10 percent from spring open-to-buy and “negotiate approval before delivery.” If the situation worsens, be ready to cut 20 percent from future orders. “Have those plans in place, but you may not need them,” he said. “One thing we do know is that some retailers can post growth even in recessions since we saw it the last time around. It’s all about timing of deliveries, and fresh product.”
Doug Arvanites, merchandise manager for men’s wear at The Doneger Group, agreed. “The economy is not in good shape. A lot of people are nervous, but there’s optimism as well. There’s a lot of newness in the market and the retailers that can give new, wearable product and not replacement items will get growth.”
Although the luxury end has been more robust of late, Arvanites said that may be because this retail tier fell more dramatically during the recession and had more room to make up. “The luxury shopper is not afraid to go shopping now,” he said. “Before, even if they had the money, they thought it looked insensitive. Now, they feel like they’ve earned it. People want to feel good, and apparel is a way to do that. Either that, or they go to an electronics store and buy another iPad.”
Even so, Arvanites said there is a “wide variance of performance at every level” of retailing, from high-end to moderate. The winners, regardless of price, are those who will provide customers with the right “content, service and engagement.” In men’s wear, the trend toward classic American apparel is where retailers are seeing the most action, he said. “The more Gothic looks have run their course and are winding down to the end of their cycle. Even younger consumers are wearing clean, almost preppy American sportswear.”
Madison Riley, managing director of retail consulting firm Kurt Salmon, is likewise not expecting the financial picture to significantly impact men’s sales this fall. “Men are driven by replenishment more than desire,” he said, “so this fall, we may see improvement. Men have been cautious and eventually they may have to pull the trigger, go out and buy.”
That being said, value will continue to be a key issue, particularly for the moderate customer. “It will be highly promotional,” Riley said. “If you look at Jos. A. Bank, that’s what drives their business. It’s at a level beyond what we saw three years ago. And Kohl’s, J.C. Penney, Bank and Men’s Wearhouse know it, too.”
Eric Beder, managing director of equity research for Brean Murray, Carret & Co., is slightly less bullish. “We’re going to see further caution on the part of the consumer,” he said. “The S&P downgrade and the rest of what’s going on came as a surprise and put a capper on a season of poor economic mood.”
But while he expects the consumer to be cautious when heading out to shop this fall, he’s not expecting a significant decline.
“With men, there are two types of customers,” he said, “the traditional and the fashion-driven twentysomething. The business with the twentysomethings will remain pretty strong. If he has a job, he has money and he will spend it. But the bread-and-butter, 35- to 50-year-old man will pull back.”
The winners — whether they target older or younger customers — will be retailers who are “different and unique,” Beder said, “someone with an edge.” By providing product that consumers just cannot
resist, he said, “they can still drive people to the stores.”
Beder said retailers cannot get caught up in the economic uncertainty and have to focus instead on running their businesses every day. “They can’t pull back and be conservative in times like this,” he said. “They have to be aggressive and offer quality merchandise, innovative fabrics and [alluring] color. The same-old, same-old,” he said, is a recipe for disaster.
Mark Montagna, vice president and senior analyst of specialty retail at Avondale Partners, believes the biggest impact on consumer spending right now is “headline risk,” or the psychological reaction customers will have to the flurry of economic doom and gloom news they see in the headlines. This may hurt the higher-end customer first, but is unlikely to have a major impact on the lower tier, he believes. “Men earning $100,000 or more look at their future based on how their stock portfolios are doing. But for the moderate customer, a lot of these people don’t own stock, so they probably won’t pull back.”
They may trade down, however. Montagna expects footwear to fare better than apparel for back-to-school. He said footwear prices rose around 5 percent while apparel is up 10 to 20 percent, so “the relative value is greater.”
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