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A SHRINKING SHARE OF WALLET

NEW YORK -- Call it the perils of polarization.<P>A tug-of-war is being staged over consumers' purse strings for a broad range of services and products -- and so far, the contest is clearly being won by the services sector, with apparel a notable...

NEW YORK — Call it the perils of polarization.

A tug-of-war is being staged over consumers’ purse strings for a broad range of services and products — and so far, the contest is clearly being won by the services sector, with apparel a notable loser on the product side. A baby boomer cohort, which holds the country’s greatest purchasing power, poses huge potential for the fashion business that will go unrealized — unless marketers can awaken them from their somnolent, wardrobe-replacement state and provoke a more acquisitive mind-set that gets them buying fresh fashion. And department store and apparel specialty chains continue to lose their battle with value-driven retailers, despite persistent efforts to strip down services and stage daily promotions in a bid to compete.

The bottom line: Consumers are spending less and less money on fashion. Fashion companies have been losing share of the consumer’s wallet for most of the past two decades and suffered steepening declines in 2000 and 2001. They can expect their share to drop further this year and in 2003, to projected 3.6 percent and 3.5 percent slices, respectively, according to estimates from the Commerce Department and management consultant Retail Forward. That would compare with the 4.9 percent piece of Americans’ spending they captured back in 1980. After 2003, apparel’s share of consumer spending is expected to plateau until 2006, when it’s projected to drop again, to just 3.4 percent.

Put in terms of cold hard cash, pegged to 1996 constant dollars, these trends have translated into slumps in annual spending on apparel from the 4.9 percent of consumers’ wallet back in 1980, or $96.37 billion, to just 3.7 percent of their wallet, or $277.26 billion in 2001, based on the data from the Commerce Department and Columbus, Ohio-based Retail Forward. That share is expected to fall to the 3.6 percent level, or roughly $285.32 billion this year; plateau at 3.5 percent annually in 2003 through 2005, and sink again, to 3.4 percent in 2006, when it is projected to reach approximately $342.3 billion.

Those market share predictions are underpinned by the meager 0.8 percent hop, in current dollars, forecast for consumer spending on clothing this year, to an estimated $262.41 billion up from the $260.29 billion spent in 2001, according to the government agency and management consultant. Next year, spending in the category is expected to climb a more robust 3.6 percent, hitting $271.9 billion and then advance by 4.3 to 4.4 percent annually through 2006, when it’s projected to tally $308.97 billion.

Also figuring in the tussle is the ongoing trend to casual clothing, which carries smaller price tags than dressier apparel and requires less frequent replenishing. Additional factors include shopping’s ebb as a feel-good activity and the bigger chunk of consumer’s income being captured by housing, which now gets around 35 percent of a household’s annual budget, on average, up sharply from about 25 percent back in 1977.

In short, fashion marketers face considerably more complex challenges than simply the well-chronicled macroeconomic drivers of apparel deflation and a strong dollar. Those economic factors have simply exacerbated a problem wrought largely by lifestyle-driven spending shifts because they’ve prompted clothing producers and retailers to pass along the resulting savings to their customers. This has deepened dollar-volume declines even as unit sales of some products, such as jeans, have risen and further contributed to the decline in apparel’s share of consumer spending.

Nor is apparel the only sector caught in this whirlpool sucking away dollar share. Another major area is spending on food.

“Gap, Levi Strauss, Nike, Coca-Cola, McDonald’s and Kodak are iconic U.S. brands that are struggling now,” observed Geoff Meredith, president and founder of San Francisco-based Lifestage Matrix, a strategic planning consultant and market researcher. “They rode to the crest on the backs of the baby boomers, who are entering new life stages as they age. All generations go through the same life stages, but they behave differently through those progressions.

“Apparel marketers need to tune in to the subtle differences in the ways the boomer, Gen X and Gen Y cohorts behave, in figuring out how to make their products appealing to them,” Meredith advised, in referring to the varied manner each group negotiates such life stages as schooling, marriage, career, empty-nesting and retirement. Moreover, Meredith and others pointed out there are distinctions within the boomer generation that need addressing as well, if marketers expect to max-out on that group’s purchasing power.

Fashion has taken a harder hit than most merchandise categories, noted economists and marketing consultants, in large part because of consumers’ pronounced swing to allocating more of their money to such areas as travel, entertainment, restaurants, family-related services and fitness activities, and to services such as health care and transportation, along with related expenditures, notably housing, education, electronics, medicine, insurance and fuel.

According to the Census Bureau’s latest Consumer Expenditure survey, the strongest wallet-share gains between 2000 and 1990 were made by housing, which captured 32.4 percent of Americans’ spending versus 30.7 percent; transportation, which rose to 19.5 percent from 18 percent; personal care products, which climbed to 1.5 percent from 1.3 percent, and health care, growing to 5.4 percent from 5.2 percent.

And if consumers are spending more money on housing, they also are devoting more dollars to what goes inside of them, including outdoor grills going for $3,000-$5,000; high-ticket electronics, like plasma screen TVs and surround sound systems, and swimming pools. Indeed, the dozen or so market researchers and economists contacted agreed that a big piece of the puzzle facing the fashion business is that Americans’ homes are playing a more important role in people’s lives and related spending is on the rise as they spend more time there, with more friends and relatives.

“We found 28 percent more people than ever grilling outside this past Memorial Day weekend,” related C. Britt Beemer, chairman and founder of America’s Research Group, a Charleston, S.C.-based consumer behavior and strategic marketing firm. “More than 8 percent of the people we surveyed in January said they had swimming pools or were adding them, up from the 1.9 percent average we’ve seen over the past 15 years,” he added, in citing data from ARG’s weekly surveys of 10,000 to 15,000 consumers. “America’s priority is not on buying nice clothes.”

In addition, noted Lois Huff, a vice president at Retail Forward, where she specializes in consumer shopping behavior and demographics, “The baby boomers want to do new things. They’re asking themselves, `Do I need more objects or do I want to have new experiences?’ That’s the big thing [siphoning apparel sales],” she related. “In other cases, there’s a demand for services to `do it for me’ rather than a desire to `do it myself,’ as the boomer generation gets older.

“The leading edge of the baby boomers is moving into their prime earning and spending years,” Huff said of Americans ages 50-56. “But their unit purchases of apparel are tending to go down and they are more likely to be replacement purchases. It’s a case of full-wardrobe syndrome.”

“The boomers and Gen Y will become the focus of successful apparel marketers, but they shouldn’t be looked upon as homogenous groups,” counseled Frank Badillo, Retail Forward’s senior retail economist. “It behooves fashion firms to micromarket. The greatest potential lies in the core and leading edge boomers,” he contended of those in their late 40s through late 50s. That’s because they have established their households, in many cases are empty-nesters. And because of their education levels and age, they have more purchasing power than either the lagging edge boomers, now in their late 30s to mid-40s, or Gen Y, ages 20 and under, the economist reasoned. (About 62 percent of core boomers completed some college, versus 58 percent of the lagging edge, for instance.) Boomers in their late 30s to mid-40s, in contrast, trend closer to Gen X than their boomer brethren in many ways, including the sizable share of spending they’re devoting to home- and child-related purchases. According to Badillo, this group’s home ownership was delayed by the recession of the Eighties.

Making matters tougher still for apparel marketers aiming to build dollar share is that Americans’ penchant for budget fashion and moderately priced basics shows no signs of abating. As recently as last December, for example, 90 percent of the country’s consumers visited a Wal-Mart, Kmart or Target, compared with the 28 percent who shopped a department store, recounted Beemer of America’s Research Group. Ten years ago, by comparison, 64 percent shopped department stores, while 42 percent visited discounters. Overall, people made 39 shopping trips for apparel last year, on average, or 9 percent fewer than the 43 trips they averaged in 1999, while the number of apparel items they bought each time also eased, to an average of 3.2 from 4, according to NPDFashionworld Research.

And with women both the biggest shoppers and primary purchasers of apparel, the broader decline in recreational shopping has taken a heavy toll on fashion turnover. “Shopping to make yourself feel better has largely ended,” said Beemer. “It used to be that women told us they did this at least a few times a year. Now, it’s more likely they’ll go out to see a movie.”

Editor’s Note: This is the first in a two-part series on consumer expenditures on apparel. The next story will examine the long-term outlook for apparel’s share of the consumer’s wallet and what companies can do to address it.