Fashion companies are boosting their spending — big time — but it’s not because they’re feeling bullish about the consumer or the competitive landscape.
If anything, the industry’s biggest companies are spending out of nervousness, plowing money into the store base, but also e-commerce and omnichannel capabilities as they try to keep up with each other and an ever-more digitally savvy shopper.
A WWD study of the annual reports of 15 top U.S. fashion companies and retailers found that the group plans to boost their capital expenditures this year by as much as $1.9 billion, a 9.3 percent increase. (Factoring out the giant Wal-Mart Stores Inc., which accounts for more than half of all the overall expenditures, the rest of the group plans to increase their spending by as much as $1.2 billion, or 14.1 percent.)
A lot of that cash is going toward maintenance items, store refurbishments and some new doors — Nordstrom Inc., for instance, is opening a store in Manhattan and building out its Canadian presence. But the emphasis on gaining a digital edge and getting brick-and-mortar stores and distribution centers omni ready is cropping up in many budgets.
Arnold Aronson, managing director of retail strategies at Kurt Salmon, said spending is going up because “the retail world is becoming much more complicated.”
“Retail technology is the new disrupter,” Aronson said. “Everybody’s got to have it and [spending on it] depends on where you are in the race. There are some stores that are working on a much more advanced level and they are now doubling down on that. There are other stores that are at what you could call the infant or adolescent stage and are having to play catch up.”
Bringing together online and offline operations means spending on much more than a Web site. Stores have to be made ready to ship goods to consumers, the sales force needs to be armed with mobile points of sale, smart fitting rooms have to be plugged in, data needs to be analyzed and so on.
“All this stuff doesn’t happen by wishing,” Aronson said. “There’s a huge infrastructure that has to be set up and that’s what you see in these capital expenditures.”
Some retailers have found omnireligion of a sort.
Target Corp. cut its spending by 5.3 percent to $1.8 billion last year, but is reversing course for 2015 and spending $2.1 billion, an increase of 17.6 percent. The mass merchant said the jump reflects “our focus on becoming a leading omnichannel retailer through investments in technology and supply chain, elevating signature categories and opening new stores, including urban formats.”
Target’s still-new chairman and chief executive officer Brian Cornell is trying to make up for ground lost while previous management unsuccessfully tried to advance into Canada and struggled with a high-profile data breach.
Among the others calling out their efforts to meld their store and e-commerce efforts:
• Wal-Mart said it is “striving to seamlessly integrate the digital and physical shopping experience” and will this year invest “$1.2 billion to $1.5 billion in e-commerce Web sites and mobile commerce applications that will include technology, infrastructure and other areas.”
• Gap Inc. is focusing much of its $800 million in spending this year “omnichannel and supply chain capabilities.”
• Kohl’s Corp. plans to spend $328 million this year on computer hardware and software, 41 percent of its capital spending budget this year. That is the same amount the retailer plans to put into refreshing its stores.
Others are less specific and call out IT or spending on distribution centers, many of which are being retooled to fulfill orders from individual customers that come in via the Web.
It’s significant that Ross Stores Inc., the company in the sample that plans to cut its capital spending the most this year, doesn’t have an e-commerce operation. (The chain’s capital expenditures are set to be down 30.4 percent to $450 million after spending $210.9 million on a New York buying office in 2014.)
Retailers putting money into technology are not only trying to keep up in the digital arms race with shoppers, but also trying to get a better view of their own operations, making it easier to serve digital shoppers.
“The big spend has really been in providing that global inventory visibility and access to the chain-wide inventory from anywhere in the system,” said Michael Brown, a partner in the retail practice of A.T. Kearney.
But many are still trying to zero in on just where they need to put their dollars.
“There has been a pervasive challenge in understanding what is the right technology for my business,” Brown said. “Many retailers are still a little confused as to what investments are going to get them the biggest bang for their buck. Today, they’re chasing a lot of shiny objects. Retailers need to first understand the unique value proposition they bring to the consumer and invest in technology that supports that as opposed to the follow the leader or follow Amazon strategy.”
Christine Chen, senior investment analyst for global consumer companies at Ashfield Capital Partners, added that: “A lot of capex these days is being devoted to technology because it needs to be and certain retailers are further along than others. What’s most interesting is that the capex in technology is now a necessity. It used to be that if you were doing it, you were ahead of the game. Now it is actually a necessity.”