retail capital expenditures

Reinvention isn’t cheap — but fashion can’t afford to stay the same.

After a lean year in 2017, when many retailers hit what might have been rock bottom and closed thousands of stores, longer-term spending plans are up at most of the large U.S. apparel companies.

A WWD list of 15 retailers and brands boosting their capital expenditures this year showed an overall increase of 18 percent. Leading the list with breakaway spending were Michael Kors Holdings and Ralph Lauren Corp., with plans for respective increases of 108 percent and 70 percent this year. (Not everyone is feeling so flush: J.C. Penney Co. Inc., for instance, cut its planned capital expenditures this year to $375 million, down from $395 million in 2017.)

Capital expenditures are planned in advance and reflect longer-term spending on property, equipment and other tangible assets. Public companies detail their planned expenditures for the year ahead in regulatory filings, and where the money goes often says much about where they see their future.

Plans for this year were laid in late 2017 as business started to finally pick up with fall spending gains that flowed into the Christmas rush and extended into the first quarter.

“The capex spend is a reflection of the optimism that started building in the back half of last year,” said Bill Lewis, a director of AlixPartners’ retail practice.

Lewis said retailers are putting money into “what they’re calling customer experience.”

“The ones that are doing it right are allowing their customers to experience their brand or their retail services in any way they want,” he said.

For some, that’s building or expanding their buy online, pick up in store capabilities, while for others it might mean adding more delivery options.

Some of it is what Lewis described as “catch up investments” after lean times.

“They’re feeling better about the investments,” Lewis said. “They’re just going for it.”

One company clearly going for it now is Ralph Lauren.

The fashion group went into 2017 with plans to spend $300 million to $320 million, but ended up with capital expenditures of just $162 million, or 2.6 percent of revenues.

Chief financial officer Jane Nielsen told investors at a meeting last week that the company was going back to spending 4 percent to 5 percent of revenues, but would be allocating the funds differently than in years past.

“The last two years have been a test and learn philosophy,” Nielsen said. “We tested the small format stores…we’re doing the L.A. market test…we’ve tested RFID and are now ready to roll that out in a more significant way. We’re ready. We’ve tested these ideas. We know they return [on their investment].

“We are going to put our investments to face the consumer, to change their experience, to change the shopping environment, to change our digital environments, to add functionality there,” she said. “So if you think about where we were, flip it. We’re going to be about more than two-thirds consumer-facing and a little less than one-third on infrastructure and internally facing investments.”

Retailers have found a perhaps unexpected ally as they spend to modernize their businesses and compete in the age of Amazon. Investment across the sector is being supported by the tax reform package pushed through by President Trump just before Christmas last year.

While the particulars vary, the sweeping tax changes cut the corporate rate overall to 21 percent from closer to 35 percent.

Target Corp., for instance, added $1 billion to its capex plans for this year and is laying out $3.5 billion to invest in its stores and supply chains.

“The answer to the question ‘What are you going to do in light of tax reform?’ is simple,” said Catherine Smith, Target’s executive vice president and cfo, during a call with analysts in March. “We’re investing in our business and our team to support Target’s long-term sustainable growth. We first look to invest in projects that promise to generate long-term value, then we want to support our dividend…and finally, we look to return any excess cash [to shareholders].”

For retailers, how much goes to the business and how much goes back to shareholders could make all the difference.

Here, a look at 15 fashion companies spending more this year and where they’re putting their money, ranked by percentage increase in their planned spending.

15 Fashion Companies Boosting Capital Expenditures

Michael Kors' fall ad campaign.

Michael Kors’ fall ad campaign. 

1. Michael Kors Holdings

2018 Planned Capex 2017 Capex Change
$250 million $120 million 108%

The majority of Michael Kors’ planned expenditures relate to its retail and e-commerce operations, although it is also spending to enhance its distribution and information systems infrastructure and corporate offices and on new shops-in-shop.

Ralph Lauren RTW Spring 2018

Ralph Lauren spring 2018  Giovanni Giannoni/WWD

2. Ralph Lauren Corp.

2018 Planned Capex 2017 Capex Change
$275 million $162 million 70%

Ralph Lauren said in public filings that this year it is spending “primarily on consumer-facing initiatives that have demonstrated a proof of concept and healthy rates of return, including our global store fleet and digital ecosystem.”

Customers check out at a Target store on Black Friday in Alexandria, Virginia, USA, 24 November 2017. The day after Thanksgiving known as 'Black Friday' kicks off the holiday season of shopping. Thirty percent of annual retail sales occur between Black Friday and Christmas, according to the National Retail Federation.Black Friday shopping, Alexandria, USA - 24 Nov 2017

A Target on Black Friday.  REYNOLD/EPA-EFE/REX/Shutterstock

3. Target Corp.

2018 Planned Capex 2017 Capex Change
$3.5 billion $2.53 billion 38%

Target is ramping up spending to accelerate store remodels, roll out more small-format doors and to support its supply chain.

Macy's

Macy’s in New York.  Mark Lennihan/AP/REX/Shutterstock

4. Macy’s Inc.

2018 Planned Capex 2017 Capex Change
$1.05 billion $760 million 38%

This year, Macy’s capital expenditures will support the growth of its Backstage and Bluemercury concepts, the expansion of store pick-up options, and other store, digital and technological enhancements.

TJX t.j. maxx, marshalls

T.J. Maxx parent The TJX Cos. Inc. is gaining market share.  Courtesy

5. The TJX Cos. Inc.

2018 Planned Capex 2017 Capex Change
$1.4 billion $1.06 billion 32%

The parent of T.J. Maxx and Marshalls has $800 million earmarked for its offices and distribution centers this year, $400 million for store renovations and another $200 million for new stores.

A Ross storefront.  Shutterstock / Ken Wolter

6. Ross Stores Inc.

2018 Planned Capex 2017 Capex Change
$475 million $371 million 28%

Off-pricer Ross is planning to spend on new Ross and DD’s Discounts stores, relocations, information technology and other areas.

Solange Knowles in Calvin Klein’s new ad campaign. 

7. PVH Corp.

2018 Planned Capex 2017 Capex Change
$450 million $358 million 26%

The corporate parent of Calvin Klein and Tommy Hilfiger attributed some of its spending increase this year to the timing of certain expenditures, but it is also upgrading its supply chain and logistics systems, its digital commerce platforms and renovating and expanding its offices in New York and Amsterdam.

The runway feature at select Abercrombie stores.  Courtesy Photo

8. Abercrombie & Fitch Co.

2018 Planned Capex 2017 Capex Change
$130 million $107 million 21%

Abercrombie said in public flings that its capital expenditures this year would be “prioritized toward store updates and new stores, as well as direct-to-consumer and omnichannel investments, information technology and other projects.”

Pedestrians pass Tiffany & Co store at Frankfurt's fashionable Goethestrasse street, late 16 November 2017 in Frankfurt, Germany.Tiffany & Co store at Frankfurt's fashionable Goethestrasse street, Germany - 16 Nov 2017

Tiffany & Co.’s Frankfurt store.  ANTIN/EPA-EFE/REX/Shutterstock

9. Tiffany & Co.

2018 Planned Capex 2017 Capex Change
$280 million $239 million 17%

Tiffany & Co.’s new chief executive officer Alessandro Bogliolo told analysts at the outset of the year that he is pursuing an “evolution” of the brand and would “increase the required investment spending to achieve the sustainable sales and earnings growth that I believe Tiffany is capable of.”

AtmosphereNordstrom Mens Store VIP Party, New York, USA - 10 Apr 2018

The new Nordstrom men’s store in New York.  Andrew H. Walker/WWD/REX/Shutterstock

10. Nordstrom Inc.

2018 Planned Capex 2017 Capex Change
$740 million $667 million 11%

Nordstrom, which gave its spending forecast excluding deferred property incentives, is spending on its New York women’s flagship set to open in 2019, as well as the build out of an additional West Coast fulfillment center.

Reusable shopping bags are offered for sale at a Wal-Mart Neighborhood Market, in the Chinatown district of Los Angeles. Wal-Mart is sharpening its attack against Amazon. The discounter says it is changing its membership-based free shipping service test to two days from three days and is charging one dollar less for the annual membership fee. Wal-Mart began testing the service in 2015 as a way to counter Amazon's highly successful Prime shippingWal-Mart-Delivery, Los Angeles, USA

Walmart shopping bags.  Nick Ut/AP/REX/Shutterstock

11. Walmart Stores Inc.

2018 Planned Capex 2017 Capex Change
$11 billion $10.05 billion 9%

Spending priorities at the world’s largest retailer include store remodels and digital experiences in the U.S., new stores and fulfillment internationally and “enhanced supply chain capabilities” in its e-commerce business.

Old Navy comps were up in October.

Old Navy  Shutterstock / August_0802

12. Gap Inc.

2018 Planned Capex 2017 Capex Change
$800 million $731 million 9%

The corporate parent of Gap, Old Navy and Banana Republic is focusing its spending on what it described in a filing as “transformative infrastructure investments to support its omnichannel and digital strategies.”

AE Studio at Union Square.

AE Studio at Union Square.  George Chinsee/WWD

13. American Eagle Outfitters Inc.

2018 Planned Capex 2017 Capex Change
$180 to $190 million $169 million 7 to 12%

The specialty retailer said capital expenditures this year will be tied to “the continued support of our expansion efforts, stores, information technology upgrades to support growth and investments in e-commerce.”

Romee Strijd and Josephine SkriverVictoria's Secret models at 3rd Street Promenade store, Los Angeles, USA - 06 Feb 2018

Romee Strijd and Josephine Skriver show of some of Victoria’s Secret beauty line, which helped prop up the company’s sales.  Matt Baron/REX/Shutterstock

14. L Brands Inc.

2018 Planned Capex 2017 Capex change
$750 million $707 million 6%

The specialty retail pioneer is struggling to reimagine its Victoria’s Secret chain but is charging ahead this year, devoting the majority of its spending to new stores and improvements to existing stores.

Men's Wearhouse

A Men’s Wearhouse store.  John Aquino

15. Tailored Brands Inc.

2018 Planned Capex 2017 Capex Change
$100 million $95 million 5%

Tailored Brands is spending this year to open three stores and relocate eight doors while also refreshing additional locations and investing in computer systems and distribution facilities improvements.

 

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