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The triumphant return — and subsequent immense popularity — of colorful apparel helped stage quite a gross margin windfall for the specialty retail sector in 2004.

As more shoppers returned to stores, pulled in by an abundance, sometimes overabundance, of the spring’s hottest color — pink — specialty retailers like J. Crew Group, Urban Outfitters Inc. and American Eagle Outfitters Inc. saw top-line results skyrocket in the fiscal year. That surging demand, combined with an emphasis on inventory management via technology that helps mandate when to mark down merchandise, as well as higher initial markups, helped the retailers see an improved mix of full-price and clearance sell-throughs.

The subsequent gross margin expansions seen in 2004 means specialty retailers are more in control of sales. It also means they’re increasingly retraining shoppers not to wait for a desired item to go on sale before buying it. While gross margin rates in the space mellowed in the back half of fiscal 2004 compared with the first half, when the average basis point change for group jumped 222 points, many retailers still saw significantly improved overall rates versus full-year 2003. That progress is largely expected to continue into 2005.

Typically, specialty retailers see the highest gross margin rates out of the three main retail apparel channels, in part because they clear inventory, at times, twice as quickly as department stores and mass merchants. That’s because specialty retailers must supply differentiated and updated products in order to keep their finicky customers coming back. Aeropostale Inc., for example, turned its inventory the most in 2004, at 9.01 times, while New York & Co. Inc. came in with the second-highest annual turn at 7.95 times.

This story first appeared in the May 16, 2005 issue of WWD.  Subscribe Today.

Specialty Margins Soar
 
2004
2003
2004
Gross Margin
Company
Inventory Turn
Gross Margin
Rate
Gross Margin Rate
Basis Point
Change
American Eagle Outfitters Inc. 7.83 37.62 46.20 858
New York & Co. Inc. 7.95 29.93 34.44 451
J. Crew Group Inc. 6.21 36.19 40.46 427
Abercrombie & Fitch Co. 5.82 42.06 45.10 304
Guess Inc. 5.49 34.58 37.57 299
Urban Outfitters Inc. 5.93 38.93 41.56 263
Deb Shops Inc. 6.94 30.79 33.23 244
Aeropostale Inc. 9.01 31.26 33.18 192
Charming Shoppes Inc. 5.50 28.31 29.86 155
Gap Inc. 5.63 37.64 39.14 150
Cato Corp. 5.55 30.39 31.60 121
Cache Inc. 4.09 44.17 45.11 94
Pacific Sunwear of California Inc. 4.84 35.58 36.14 56
Claire’s Stores Inc. 5.80 53.70 54.06 36
Goody’s Family Clothing Inc. 4.16 29.16 29.49 33
United Retail Group Inc. 6.39 20.82 21.12 30
Limited Brands Inc. 5.78 36.39 36.56 17
Chico’s FAS Inc. 6.43 61.29 61.39 10
The Talbots Inc. 5.34 38.33 35.62 -271
Hot Topic Inc. 7.52 38.42 35.61 -281
Ross Stores Inc. 3.87 25.47 22.63 -284
Ann Taylor Stores Corp. 4.52 54.55 51.12 -343
Christopher & Banks Corp. 7.54 42.29 38.26 -403
Average
6.01 37.30 38.24 93.83
Source: Company reports. specialty retailers tracked by WWD who release year-end results in the February-March period. Some figures are preliminary and may not include lease accounting changes. Inventory turns are calculated by dividing cost of goods sold by the average inventory as reflected on the balance sheet. *Data was compiled by WWD from the past four quarters, and the corresponding year-ago period.