After a strong year and gangbuster Christmas in 1992, softgoods sales lagged in 1993. Consumers were busy with home-related spending, and the prevailing fashions were not compelling enough to drive consumers into the stores. After slow sales early in 1994, a moderate recovery is expected to begin around mid-year.
The Apparel Cycle
Part of the softness in apparel sales can be attributed to the apparel cycle. Management Horizons has identified that apparel spending generally tracks in three- year cycles. The current cycle started in early 1991, peaked during Christmas of 1992, and will probably hit bottom in the spring or summer of 1994. These apparel cycles can be tracked all the way back to the 1960s.
It is this long-term apparel cycle that has held down apparel spending in the past six months. It ‘s the same cycle that will keep apparel sales weak into summer. With the back-to-school season, apparel spending should find itself at the beginning phases of a new cycle.
Exacerbating the negative effects of this cycle is consumer preoccupation with homegoods purchases. Low long-term interest rates continue to drive home sales, prompting sales growth at consumer electronics, appliance stores and home improvement stores.
Department Stores Focused
Department stores have reinvented and revitalized themselves. They have emerged from the bankruptcies and restructuring as operationally efficient and focused organizations. They are now willing to meet specialty stores on the price front. Additionally, they are well positioned to meet the one-stop shopping needs of an aging population.
Having gained or held market share in key apparel categories in the early 1990s, department stores stand to pick up additional share as some discount store shoppers “trade-up” to department stores as a result of the strengthening economy.
Promotional or “value” department stores should also do well in today’s softgoods environment. This rung of the department store industry (which is exemplified by Kohl’s and Mervyn’s) experienced strong growth in comparable store sales in fiscal 1993.
These stores feature strong assortments of national brands, with a major emphasis on the moderate brands, that have become of secondary importance in conventional department stores.
Discount Stores Slow Down
The current competitive and economic environment work against discount stores. Sales growth at discounters will slow as the economy recovers. Additionally, the channel is rapidly approaching maturity with few areas of geographic opportunity available for development. Furthermore, one of the historic key competitive advantages of the discount store — price — has gradually eroded in recent years. As the newly streamlined and focused department stores feature fashion at more moderate prices than ever before, they move closer to price parity with discount stores. Consumers can now shop a wider variety of outlets to get the “right” price on fashions.
Discounters gained share in apparel categories in a period when “basics” were the prevailing fashion. These wardrobe staples were relatively easy for the discounters to credibly duplicate. Now, as the appeal of basics has waned, discounters will have to do fashion as well as they do basics to continue as formidable softgoods competitors.
Some stores have counteracted by investing in the development of private label apparel with strong price/quality quotients and updated fashion content. Only those who develop a reputation for fashion will be able to compete in the current retailing environment.
Specialty Stores Hit Maturity
After an accelerated growth cycle fueled by geographic expansion through much of the ’60s, ’70s, and ’80s, apparel specialty retailing has reached maturity in the ’90s. This maturity is characterized by an over-stored retail environment, competitive intensity, increasing competitive sameness, and a growing dependency on promotional activity.
Evidence of this maturity is apparent in the industry’s sales growth – or lack of growth – numbers. Most key players have experienced at least some recent periods of negative comparable store sales growth.
Maturity has hit apparel stores at the same time their historic competitive advantages in the pricing, fashion and sourcing arenas are being neutralized. Even with some lowered price points and ubiquitous price promotions, the sheer number of customer transactions is not picking up sufficiently to offset the price point declines.
With its price advantage under siege and its expansion track stalled, increasingly the specialty store industry will need to rely on calling the fashion shots to drive sales and profits. The challenge for apparel specialty stores is to reinvent themselves. Like department stores before them, bankruptcy and consolidation will accompany and, in some cases, drive this process.