Lean inventories along with a “cadence of positive sales” are setting up retailers to see improved gross margin rates for the current quarter, according to analysts at Telsey Advisory Group who also are noting higher apparel sales. The analysts at the firm also said there are more limited product launches and collections, which creates more exclusivity — and more full-price selling.
Analysts at the firm said in their trend report that consumers are responding well to products. “Inventory remains lean, particularly in clearance,” said Dana Telsey, chief research officer at the firm. “In addition, traffic appears to have sequentially improved in malls, while continuing to show strength in outdoor centers.”
Telsey said by category, “apparel is showing an uptick, as a more seasonal weather, combined with updated bottoms, is gaining favor. Home continues to show increases, handbags are stabilizing and activewear is showing nice gains in midtier stores.” Analysts at the firm said that there’s also been a reduction in “the promotional message” at retail — meaning markdowns are tempered, which further boost gross margins.
“The combination of stable to lower promotional levels, and reduced clearance inventory, is resulting in higher gross margin rates,” Telsey said.
Telsey’s team of analysts also observed a connection between brand value and item price points. “Brand availability just for the sake of broad and extensive distribution is not meaningful, as it doesn’t always help to enhance brand value,” the authors of the report said. “What is changing in all channels of distribution is validating the offering — appealing to the customer at regular price, given that it is a distinct offering with limited availability. This is a sales and margin-driven backdrop, rather than produce as much and sell as much as possible. More limited edition and exclusive collections are the dynamic that is allowing for distribution points to be of value.”
This approach is a marked difference in how products have been launched and priced in the past decade or so. Apparel and accessory brands in particular would produce large quantities of products, flood the market with these items and then leave it to retailers to push heavy promotions.
Telsey said in regard to inventory levels, “as points of wholesale distribution are reduced and there is a greater focus on regular price selling, the rate of inventory growth in [the fourth quarter of 2017] is trending toward being lower than the sales growth rate.”
The analysts also noted that the rate of store closures is easing — especially for department stores — while specialty apparel stores in “A” malls are doing well. “More innovative use of space is top of mind, along with repurposing space for other tenants,” Telsey said of malls. “The consistent focus on a more productive, yet smaller footprint, remains underway.”
Finally, with tax reform, Telsey sees investments being made to bolster wages for sales associates to “remain competitive.” More spending on marketing is also expected, which includes efforts to improve “digital awareness.” Other areas of investment include the supply chain and more dividends to shareholders.
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