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Feeling the Pinch

Kids' wear companies are caught between rising prices and slowing sales.

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Special Issue
WWD MAGIC issue 08/25/2008

Like much of the fashion industry, the children’s apparel sector is being pinched, both by higher operating costs and slower sales.

“It’s a fairly challenging environment, particularly the upward cost pressures in the supply chain,” said Carl Steidtmann, chief economist at Deloitte Research-Consumer Business. He said the dollar’s lower value against currencies where children’s apparel is produced, coupled with rising energy prices pushing transportation costs higher, are key price pressures for vendors.

With consumers facing higher prices themselves, they are consequently cutting back on kids’ apparel purchases.

For the first six months of this year, all children’s apparel sales were down 2.6 percent from the same period the year before, according to the U.S. Bureau of Labor Statistics. By contrast, during the first six months of 2007, sales were up 14 percent, according to market research firm The NPD Group. Also, for the 2007 calendar year, all kids’ apparel sales were up 5.9 percent, following a 2006 gain of 8.4 percent, according to NPD.

Individually, girls’ apparel for the first half of this year experienced the largest sales decline for kids’ clothing, off 4.2 percent, NPD said. In contrast, for all of 2007, sales for the category increased 13.3 percent.

Sales for infants’ and toddlers’ apparel during the first six months of this year have fallen 4.4 percent, after increasing 21 percent last year. Boys’ apparel sales were the most buoyant in the first half, increasing 2.8 percent, compared with a 3.3 percent gain in 2007.

For back-to-school sales, Steidtmann doesn’t see any change in the current retail climate, even with the recent declines in gas and other energy prices. “The economic relief will be palatable, but the relief will be smaller compared to the rest of the problems consumers are facing,” Steidtmann said.

Children’s apparel vendors interviewed were somewhat encouraged about sales going forward, including the crucial b-t-s season.

“The biggest change I’m seeing are [retailers] ordering closer to season,” said Amy Hennisch, president of Peek…Are You Curious, a San Francisco-based infants’, girls’ and boys’ apparel brand carried in 75 specialty stores. There are also seven Peek stores selling the company’s full line, including Liberty of London print skirts ($58), graphic T-shirts ($38) and Italian denim jeans ($78) made in Los Angeles.

While timing for orders is changing, Peek’s specialty store clients still “are ordering about the same as last year,” said Hennisch, a former Lucky Brand executive vice president for wholesale distribution who founded Peek with Tina Canales, a former Gap women’s apparel chief merchant.

In addition, Hennisch said Peek recently added 25 store accounts, although she said two retail accounts have folded this year, with owners citing the economy as the main reason.

How specialty retailers hold up in the difficult economy concerns Alan Cohen, president of Sage Creek Organics, whose $60 to $80 organically certified cotton toddler-to-size 6 dresses, $30 to $40 shirts and $20 to $60 infant layettes are sold in 800 specialty stores, including Barneys New York.

“The challenge for our industry is the economy,” Cohen said, noting that his company is sensitive about curbing price increases. “We recognize stores have to be competitive. The individual boutiques are under a lot of pressure. People will still be buying kids’ apparel, but they’ll be more selective.”

As a vendor, Cohen said his company also is facing increased competition in the organic cotton apparel market, particularly from lower prices at mass retailers such as Wal-Mart and Target. “Thankfully, we’ve been able to have our [order] numbers high enough that we find our pricing is comparable to nonorganic apparel,” Cohen said.

Girls’ retail apparel prices in general are tracking the economic pressures facing vendors as well as consumers. In June, girls’ apparel prices were down a seasonally adjusted 1.5 percent from a year earlier, while infants’ and toddlers’ prices were off 2.6 percent. Boys’ apparel is showing relative price strength, with prices up in June 2.2 percent over the 12 months, according to the Bureau of Labor Statistics.

Even with these economic pressures, entrepreneur Carey Hill said she’s enthusiastic about carving out a niche in the organic cotton kids’ apparel business with her Mixed Baby Greens, based in Calabasas, Calif. Hill’s spring-summer 2009 line features a ribbed scooter and A-line skirts with contrast stitching, both wholesaling for $15 to $20, and a long-sleeve kimono top and yoga pant set, for $25 wholesale.

“It’s not an ideal time because people are cutting back. But I’m targeting an audience who will continue to buy [higher-end] cute, trendy clothes for their kids,” said Hill, a financial services analyst who is touting her products’ U.S. origins, from organic cotton field to garment contractor.

Another new kids’ apparel line, San Francisco-based Spike & Annie, is counting on a resortwear niche of organic cotton and hand-dyed colors and batiks, produced in Bali. It’s a corner of the market co-owner Lisa Alexander said is underserved. “Starting in September, it’s hard to find warm-weather clothes for children,” Alexander said. “With the economy the way it is, it seems like the first thing people do is stop buying clothes for themselves, but they never seem to stop buying for their children.”

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