Byline: Elaine Glusac

CHICAGO — The Midwest economy is in high gear, with consumer confidence and spending strong — good news for the overall retail picture.
But lifestyle changes have painted a more tempered scene for the apparel segment.
“The Midwest economy is very good right now,” said Sidney Doolittle, partner in McMillan and Doolittle, a consulting firm here. “There’s [high] employment, a good feeling about the future and job security, stable prices and no concern about inflation.”
Unemployment has hovered around 5.5 percent for the last year and consumers report they are quite optimistic about their current and future finances — more optimistic than the nation as a whole, according to University of Michigan surveys.
Though the big picture is bright, the apparel industry, with mixed results for retailers, has suffered through a shift in consumer spending habits in terms of what they’ll buy and where they’ll buy it, a rise of consumers at the upper and lower ends but a squeeze on the middle class.
“Apparel has been weak for some time,” said Diane Swonk, economist for First Chicago Bank. “There’s an ongoing pattern of big-ticket spending, but aging baby boomers are more interested in their homes than in apparel.”
Doolittle calls the current state a “maintenance economy” in which “people replace things they need to replace. It’s very sensible, considered, reasoned consumption.”
“Sensible” consumption today finds consumers seeking value in apparel and keeping clothing longer than they used to. The aging baby boomer also demands looser, more comfortable clothing to accommodate an expanding waistline.
“Retailers had to get in balance with customer rhythms,” said Doolittle. “People are buying again because they need to, because their wardrobe needs replacing as their lifestyle changes and their figures change.”
In addition to the shift in demand, many consumers today favor shopping in strip malls, which are more convenient than traditional shopping malls, say analysts. The trend has hurt department stores, which have had to create more compelling reasons for consumers to visit.
“They’ve got to project more value in fashionable assortments,” said Doolittle, who credits Federated Department Stores with adopting this approach.
Old Navy, a division of Gap Inc., has had great success with value-driven merchandise. This summer, the chain will make a downtown foray with a 30,000-square-foot store on State Street in Chicago — between the flagships of Marshall Field’s and Carson Pirie Scott.
“State Street is for people who work in the Loop, middle-income working women who don’t have a lot of time to shop,” said Doolittle. “It’s a perfect place for Old Navy.”
The shifting demographics of spenders have also altered the marketplace. Expansion in the part-time work force and increases in the hourly wage have created a new class of consumers with purchasing power.
“Entry-level wages are the silver lining for retailers,” said Swonk, who singled out the success of Sears’ apparel lines as an example of value-driven fashions that appeal to this segment. “Discounters continue to do well. The Targets and the Wal-Marts are the stores shopped by entry-level buyers.”
Specialty stores have long complained about discounters stealing their business. Increasing fashion lines is one competitive tactic that has worked for Glik’s, a moderate-price apparel chain with 47 stores based in Granite City, Ill.
“We love Wal-Mart,” said president Jeff Glik, who claims as his customers the children of shoppers at the larger stores.
“They [his customers] don’t want a grocery-store buggy that you wheel down the aisle and pile clothes into. We offer an experience, a fun fashion environment.
“Our formula is to bring branded sportswear to small towns of 9,000 to 15,000 people,” said Glik, who recently opened five stores in Indiana, expanding his operations from Illinois and Missouri. “Kids are more brand-conscious today than in the past.”
For the past several years, the 100-year-old company has pursued a strategy of growth through expansion, with five new locations slated for the rest of this year. Last year, same-store sales were flat while earnings were up 14.5 percent.
“I’m bullish on spring/summer,” he said. “There’s a lot of fashion, and fashion is selling right now.” Novelty stripes, tie dyes, halters, tanks, short shorts, flared jeans and twill pants are among the best-selling looks.
Wholesalers serving specialty stores also claim the good times are rolling.
“Business has been solid,” said Marilyn Lucas, a sales representative and presi-dent of the 400-member Chicago Apparel Center Tenants Association. “Retailers had a good holiday season. There was a lot of sell-through and not a lot made it to the [discount] racks.”
At the high end of the retail spectrum, demand for luxury goods continues, fueled by stock market gains.
“Only a small amount of investors spend their equity gains,” said Swonk. “Those who are paid in relation to the stock and bond market buy luxury goods. It’s the high-end executive getting great bonuses who is doing well because of record gains.”
Luxury-goods stores have fared well in Chicago’s tony North Michigan Avenue shopping area. Salvatore Ferragamo recently opened at 645 North Michigan Avenue and a multistory Polo/Ralph Lauren store is expected to take space at Chicago and Michigan, near an expanded Tiffany & Co., which is expected to open by Christmas. Chanel plans to move to a larger location on Michigan come fall.
“We will continue to see high-end stores do very well,” said Swonk, citing the strong performance by Neiman Marcus last year.
Middle-income consumers, however, are harder hit.
“Middle classes feel the squeeze,” said Swonk. “The roll-back in job benefits means they’re paying more of their own health-care costs,” thus decreasing discretionary spending. “Even Nordstrom, which serves the upper-middle-income consumer, didn’t do well. It’s a hard sector to service because it’s changing.”
More cautionary signals loom in the economy. Bankruptcies and debt reached record levels last year, even though Midwest default rates were lower than in other regions. And oversupply could continue to slow growth.
“There’s ample supply in apparel,” said Swonk. “It’s the same consumer pie carved up by more people, so many retailers are still going away hungry.”

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