NEW YORK — As spring looks blow out of stores, retailers wonder if the momentum will continue and enable the sector to regain its long-lost growth. Probably not.
It looks like apparel faces another tough year as consumers continue to remodel and buy new homes in record amounts rather than pack their closets.
This story first appeared in the April 5, 2004 issue of WWD. Subscribe Today.
From 2002 to 2003, according to data from the U.S. Department of Commerce, the rate of growth of consumer expenditures on furniture and household equipment was 9.8 percent, which is a growth rate that is more than double that in apparel as well as other segments such as food, fuel and medical care. The growth rate of home-related expenditures also far outpaced the total growth rate of all consumer expenditures, year over year.
Increasingly, consumers are spending more money on items such as flat-panel TVs, iPods and home decor products then they are on apparel, fashion footwear and accessories. And at least for the near term, this trend will continue.
Deborah Weinswig, a broadline analyst with Smith Barney, said apparel’s dwindling share has been driven primarily by deflationary pressures. “Deflation is leading to apparel looking like it is a smaller percentage of consumers’ budgets,” she said. “Your average price point is going down on an annual basis.”
But Weinswig foresees a reversal of fortune for apparel retailers this year. She said shoppers are more impressed with this spring’s looks, a response that is driven by color. “Every wardrobe is black, gray or chocolate brown, so everybody wants to add color,” she said, which she believes will lead to a pickup in the number of units sold.
“The shift in spending began last year as consumers began to make purchases on a broader spectrum of products, especially today’s youth, where it is more important to have the right cell phone than that hot pair of jeans,” said Marshal Cohen, senior industry analyst at Port Washington, N.Y.-based NPD Group, adding that he expects the trend, which he calls the “almost-there syndrome,” to continue in 2004.
Jeffrey Klinefelter, a retail analyst with U.S. Bancorp Piper Jaffray, said the shift in market share to discount stores like Wal-Mart and Target, and away from more traditional department stores, as well as the past mismanagement in apparel inventory — which results in increased margin pressure markdown activity — have been putting pressure on retail apparel sales during the past several years. In addition, he said, lower-price-point items such as accessories have been gaining share for various retailers recently, thus reducing overall dollar sales.
Still, Klinefelter said, he credits retailing management for cutting back on inventory levels, improved traffic at the mall and a renewed interest in apparel for helping to lead the industry to a recovery. “Over the past few years there hasn’t been a lot of reason to shop for apparel,” he said, noting the renewed interest in bright color palettes and better products as well as the revival in luxury. “The money was spent on homes, cars and electronics.”
Regarding sell-through, Ken Goldstein, an economist with The Conference Board, said he’s been wondering why the low prices of clothing don’t make the merchandise move more. He said the price of clothing — especially women’s clothing — is as low today in absolute terms as it was 10 years ago, and the merchandise still doesn’t fly off the shelves. “You would think if the stuff is that cheap in relative terms, while income improved three times over the past 10 years, people would be buying more,” he said. “Clothing is cheap, and yet people aren’t increasing their purchases of it.
With the boom in mortgage refinancing that began last year, consumer observers agree that Americans today are more apt to make big-ticket purchases, such as remodeling existing homes or filling their new homes with a new couch or an entertainment system, than to buy a new wardrobe. And they say that as the economy continues to improve, consumers are now more able to spend on the luxury purchases they have been putting off.
While consumers are doling out more money for big-ticket items for their homes, they are also trading up on everything from premium cable TV and high-speed Internet services to gourmet coffee and online music downloads.
“People are making lifestyle purchase decisions on a month-to-month or annual basis that is taking money out of discretionary spending,” Cohen said. He said this “systematized discretionary spending” can add up to about $200 per household each month.
Michael Silverstein, co-author of the 2003 book “Trading Up,” observed at a conference on affluence in America that consumers choose to buy a $5,000 Viking oven, for example, because it makes the family experience more enjoyable for them, and for that experience alone the hefty price tag is worth it, even if they only use it once during the year.
On the other hand, seeing a more sober consumer in the wake of the dot-com meltdown in March 2000 (as well as ongoing corporate scandals), Candace Corlett, a principal in WSL Strategic Retail, said shoppers have begun to make more careful choices as to how they spend their money. “There is a new ‘normal’ for the shopping mentality,” Corlett said. “Consumers are making choices across categories before they spend.”
Dawn Stoner, senior retailing analyst with Pacific Growth Equities, said the catalyst for the demand of home furnishings is the robust housing cycle, which is propelled — even during the recent economic downturn — by historically low interest rates. For February, new home sales are up 24.4 percent year-over-year.
“With robust home buying, people need to furnish their new living spaces,” Stoner said, noting a recent State of the Industry report from Home Furnishings News, a sister publication to WWD, that cited several areas of growth, such as major appliances, textiles, small appliances, home decor and furniture.
And when it comes to furnishing your home, Stoner observed that Americans today have greater concern with putting higher-quality products in their homes. Consumers tend to view the home as their most important asset. Moreover, Stoner said, consumers are taking at least three to five years following the purchase or remodeling of a home to furnish it.
Stoner said she expects sales of higher-end major appliances such as Viking ranges to perform better than other home categories. And as the economy continues to improve, Stoner said, consumers will earmark an even higher percentage of their total expenditures to the home.
However, Stoner said that while she doesn’t expect the housing sector to collapse in the near term, she cautioned that an increase in interest rates by 2005 could dampen the demand for home furnishings, impacting the portion of consumers who need the benefit of lower interest rates to make big purchases.
“It just makes sense that furniture sales are up,” said Peter G. Glassman, senior domestic economist with Bank One Corp. “People are buying homes at record rates, and they want to fill them with new furniture.” He said that because of refinancing, which allows for a cashout or lower monthly payments or both, people have increased their capacity to spend.
Britt Beemer, chairman at Charleston, S.C.-based America’s Research Group, said consumers are spending more money on things they feel can give them some kind of personal satisfaction. He said he believes leisure activities, such as taking short trips or buying swimming pools, as well as spending on backyard-related products like outdoor grills and summer kitchens, will be a top priority this year.