The triumphant return — and subsequent immense popularity — of colorful apparel helped stage quite a gross margin windfall for the specialty retail sector in 2004.
As more shoppers returned to stores, pulled in by an abundance, sometimes overabundance, of the spring’s hottest color — pink — specialty retailers like J. Crew Group, Urban Outfitters Inc. and American Eagle Outfitters Inc. saw top-line results skyrocket in the fiscal year. That surging demand, combined with an emphasis on inventory management via technology that helps mandate when to mark down merchandise, as well as higher initial markups, helped the retailers see an improved mix of full-price and clearance sell-throughs.
The subsequent gross margin expansions seen in 2004 means specialty retailers are more in control of sales. It also means they’re increasingly retraining shoppers not to wait for a desired item to go on sale before buying it. While gross margin rates in the space mellowed in the back half of fiscal 2004 compared with the first half, when the average basis point change for group jumped 222 points, many retailers still saw significantly improved overall rates versus full-year 2003. That progress is largely expected to continue into 2005.
Typically, specialty retailers see the highest gross margin rates out of the three main retail apparel channels, in part because they clear inventory, at times, twice as quickly as department stores and mass merchants. That’s because specialty retailers must supply differentiated and updated products in order to keep their finicky customers coming back. Aeropostale Inc., for example, turned its inventory the most in 2004, at 9.01 times, while New York & Co. Inc. came in with the second-highest annual turn at 7.95 times.
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