Forget the second quarter, fashion is betting on a boost in the second half — when holiday hopes spring eternal for retail.
There’s plenty of catching up to do.
Retail started 2019 on a down note, carrying on the theme from the fourth quarter, when sales were disappointing for many merchants despite relatively strong consumer economics.
While government figures show retail sales grew a combined 2.9 percent during February, March and April — the fiscal fourth quarter for retail — apparel and accessories specialty stores were flat, while traditional department stores were down 9.7 percent. (E-commerce sites and mail-order houses were the counterpoint, growing 12.2 percent).
The retailers that performed the best were on the mass side of the spectrum and away from the mall.
“Most of the off-mall players, the big guys are all doing fine,” said Craig Johnson, president of Customer Growth Partners. “Whether it’s the smaller players like Dollar General or whether it’s the big guys — Walmart, Costco, Target, etc., they are doing fine. They sailed through the first quarter and are picking up momentum.”
Those players are expected to continue to press on as wage growth and low unemployment support continued spending. But most everyone is working on a new way forward.
“Department stores are obviously in the ditch, specialty apparel is mostly quite weak,” Johnson said.
The fashion exceptions — like Lululemon Athletica Inc. — are few and far between.
“One of the problems on the apparel side is, so much of the product that’s out there is commodity product,” Johnson said. “It’s just the same kind of stuff you can find in 20 different places, either online or offline. You need to bring innovation, newness, brightness, color and excitement and you have to make a store experience that stands out. You’ve got to give people a reason to shop your stores and if you’re doing the same old, same old, you’re going to be left out of it.”
Few fashion retailers are projecting a big rebound in the current quarter, but instead are looking to the fall and the holiday season, when the weak sales last year will at least make the numbers look stronger by comparison. Retail’s reinvention — a sector-wide push to make shopping in stores a better experience and brick-and-mortar more competitive with Amazon — will also have had more time to take hold and an opportunity to prove itself.
Even so, the outlook for many is modest at best and the slow start to the year did plenty of damage to annual outlooks.
Ike Boruchow, a Wells Fargo analyst, looked at the first-quarter results of 32 retailers and found that 55 percent tamped down Wall Street’s expectations for the full year.
“Consumption trends in apparel/footwear continue to slow — especially as it pertains to women’s casual apparel — and an unprecedented amount of outlooks are being cut,” Boruchow said.
The pain points are numerous, varied and in many cases, completely out of the control of retailers.
The weather hasn’t inspired much shopping. The digital economy, from cell phone bills to Netflix subscriptions, is giving fashion a run for its money. Amazon looms large and is pressuring retailers further with plans to make one-day shipping standard for its Prime orders. And the trade war spurred on by President Donald Trump could be starting to rattle shoppers just as the strong U.S. dollar keeps tourists away.
Add in the secular challenges for mall-based chains and the picture becomes even cloudier as retailers look for their fortunes to turn — or at least stabilize.
Teri List-Stoll, Gap Inc.’s executive vice president and chief financial officer, told analysts of projected growth: “The second half definitely looks like a bit of a hockey stick, but you have to keep in mind we’re comping a second half of 2018 that was not our strongest. And so we’re effectively — when you model all the way through it, saying we’re going to do about the same as last year in the back half, so not a particularly aspirational goal at this point.”
To do better than that, she said Gap is focusing on stronger looks, tighter inventories, improved marketing and so on.
The company is also planning to spin off its most successful business — Old Navy — which means Gap and Banana Republic will have to continue to do more to stand on their own.
“There are definitely opportunities for retailers and brands to be smarter about this holiday,” said Tatiana Perim, a principal in A.T. Kearney’s consumer and retail practice. “First, they should avoid the typical discount promotions in which there’s only price erosion and it’s not profitable for the brand in the long term. They need to sell the brand and personalize the holiday selling experience.
“Retailers can also bring traffic to the stores through influencers that are locally relevant to consumers or with engaging experiences and services — that becomes the differentiation factor when compared to pure online players,” Perim said.
As the landscape has changed and e-commerce has grabbed more of the sales growth and traffic in stores waned, retail has become a game of follow the leader.
Some companies have been very savvy about building online and using sophisticated technologies to cater to consumers and grab share — Amazon is the example that looms largest, but there are others, including online styling service Stitch Fix Inc. or the Millennial-obsessed and influencer-savvy Revolve.
All of those examples began with an emphasis on using data to serve up what shoppers want. It’s a trick that the traditional retailers on the leading edge are just starting to learn.
“I’m pretty optimistic about the second-half forecasts, especially for retailers and companies that have been focused on the consumer,” said John Samuel, a director in AlixPartners’ retail practice. “Where I’m seeing the most success is at companies with a steady focus on a data-driven approach.
“Data is the key to everything,” Samuel said. “Those digital native brands have data at the core of what they do and kind of jumped out to an early lead, but that secret’s out. The data isn’t just, ‘I got information from a customer and so I know exactly what they want to purchase.’ [The move toward using] data is also crafting the strategies to service those customers, focusing on markets that are going to achieve the revenue and margin targets…Using data to craft a strategy and also setting yourself up to respond to the consumer.”
While some retailers are betting big on data, there are many different approaches being worked on — from new takes on returns to all the brick-and-click omnichannel initiatives that have been in the works and touted for years.
What is clear is that retailers need to keep moving and place their hopes on more than just the second half.
“I wouldn’t want retailers to be whistling past the graveyard and just thinking they can deliver on that fall/Christmas timeline,” Samuel said.