Seasonality and apparel spend- asking the right questions

Apparel is a classic example of a seasonal product, with weather, the holidays and the school calendar all affecting household expenditure on clothing. But is it time that retailers started asking questions about other factors- such as ethnicity?

Seasonality is a much-touted term in retail and particularly in the apparel sector where the product is particularly susceptible to environmental factors such as economic fluctuations and unseasonable weather conditions.

Apparel sales for May and June are a good example - poor weather as well as continued constraints on consumer spending led to a dismal performance across the board. It was in fact the worst showing for two years for most apparel retailers in the US.

While seasonal factors affect all retailers to some extent, with expenditure fluctuating in response to changes in weather, the holidays and the school calendar for example, apparel is a classic example of the seasonal good.

But apparel expenditure is also impacted by other issues, as a report by Janet Wagner, associate professor, department of marketing, and Manouchehr Mokhtari, associate professor, department of family studies, University of Maryland, shows.

Seasonality and expenditure
The paper confirms that seasonality moderates the relationship between consumer characteristics and per capita apparel expenditure. The income elasticity of apparel expenditure varied by season as did the effects of age, ethnicity, household size, region, and housing tenure. The analysis is based on data from the Quarterly Interview Component of the 1990 to 1991 Continuing Consumer Expenditure (CE) Survey, the largest and most comprehensive source of data on the income and expenditures of US households.

A well-developed body of research shows that apparel spending is affected by consumer characteristics, including income, social class, family type, and location. However, little is known about if and how seasonality moderates the effect of consumer characteristics on household apparel expenditure.

US consumers spend a substantial amount on apparel. It is estimated to account for 5.7 per cent of the typical household budget and to contribute $200bn annually to retail sales (US Department of Labor).

Results show that the income elasticity of apparel expenditure differs by season. In addition, seasonality moderates the effect of age, African-American ethnicity, household size, region of residence, and home tenure.

The Bureau of Labor Statistics' (BLS) Consumer Expenditure Survey has been the major source of data for the analysis of expenditures on goods and services (including apparel) by US households for a century.

Yearly cycles
Seasonality is the tendency of consumer expenditures on a good or service to vary in some pattern over the course of a year. Expenditures for products ranging from furniture to cocktail mixers are affected by seasonality. However, apparel is considered by retailers and applied economists to be the classic example of a seasonal good.

Apparel spend tends to stick to the following pattern: expenditures are lowest in the first quarter, increase through the year, and peak in the fourth quarter. Peak expenditures in the fourth quarter can be explained by environmental factors, such as the weather and the holiday season.

Time series analyses also show the effect of seasonality varies by age of the reference person and region of residence. The results of cross-sectional studies show apparel expenditures are higher in winter than in summer. The effects of age, social class, and marital status also appear to differ by quarter.

The results showed that elasticity was highest for autumn. The result was expected for two reasons. First, autumn and winter apparel, most of which is purchased during the autumn quarter (October through December), tends to be higher priced than that of spring and summer apparel.

Second, autumn includes the holiday season, when many retailers realise as much as 25 per cent of annual sales. In previous research, apparel has been shown to be the most popular gift item.

Necessity or luxury?
Academic research dating from the early 1990s and before has tended to classify apparel as a luxury, however this classification has changed lately. Recent research shows that apparel is habitually getting a smaller slice of the total household spend. The continuing decline in apparel prices relative to other goods has also helped shift apparel from luxury class to necessity status.

The report also found that apparel expenditure peaks at age forty-eight in spring and age forty-three in summer, although age did not have a significant effect on winter spend.

Marital status was significant in the fourth quarter, which includes the holiday season. Married couples may have more extensive social networks than single individuals, with more active social lives during the holiday season. Consequently, expenditure for apparel for personal use (as well as for gifts) may account for a higher proportion of the budget during the fourth quarter.

Households headed by a woman were found to spend more on apparel in all quarters than comparable households with a male head.

For the households in the sample, significant effects for education and occupational status were observed in all quarters. Those households headed by more educated people, both male and female, spent more on apparel each quarter, and white collar households spent more on apparel each quarter than blue collar households. Apparel is considered one marker of status, so households with higher educational and occupational status might be expected to spend more per capita than others on apparel.
The result for education is consistent with previous research, based on both the annualised and the quarterly data, showing college graduates to spend more than others on apparel. The result for occupational status is new - this research is the first to demonstrate that households with a white collar head spend more per capita than comparable blue-collar households. In previous research, the analysis of occupation has been based on a working/non-working dichotomy.

Racial factors
The apparel expenditure of the African Americans in the sample differed from that of Caucasians in the autumn quarter, when they spent less than Caucasians. Previous research on the effect of race has yielded mixed results. On the one hand, studies based on annualised data suggest that African Americans spend more than Caucasians. On the other hand, studies based on the quarterly data show no effect for race.

All previous research based on the quarterly data has involved some measure of income, rather than total quarterly expenditure. In the case of African Americans, there may be a relatively high incidence of incomplete income reporting, creating bias in the results. Unlike most other research, the data in this study include expenditure for gifts of apparel, which are less likely to be given by African Americans than Caucasians.

For the households in the sample, Hispanics spent more per capita than Caucasians on apparel in every quarter. This finding is backed by recent research from Cotton Incorporated.

Apparel-friendly Hispanics
Forty-nine per cent of Hispanic women said they bought fashions at the beginning of the season rather than waiting for the sales and 68 per cent of this number buys new and different items rather than replacing wardrobe basics. When asked whether they would rather be overdressed or underdressed at a party, 61 per cent of Latinas said overdressed, compared with 50 per cent of Caucasians and 48 per cent of African Americans.

Unlike other consumer groups that tend to look to the apparel market for fashion direction and approval, Hispanic women have the confidence to take the lead.

"It's not only a very dynamic market, but also one whose very strong tastes in fashion are beginning to influence the mainstream," said Wendy Liebmann, president of WSL Strategic Retail, a New York-based retail consulting firm.

"Clearly this is a very large, growing, financially strong consumer segment which is very interested in fashion and which will create its own fashions if someone else doesn't do it."

Retailers would be well advised to take note of the US Census figures for 2000 - Hispanics are now the fastest-growing minority group in the US, having grown by 58 per cent over the past 10 years to 35 million people.

Size matters
Household size affected apparel expenditure in the winter quarter only, when the relationship was negative. As household size increases, economies of scale may become operative as apparel items are shared or handed down. Previous research has shown that the number of children (except teenage boys) in a household negatively related to per capita apparel expenditure.

Among households with children, renters spent more than homeowners on apparel.

The results demonstrate that seasonality moderates the relationship between consumer characteristics and apparel expenditure. For the households in the sample, income elasticity varied by quarter, as did the effects of age, marital status, African American ethnicity, household size, region of residence, and home tenure.

Most interesting of all for retailers struggling in a difficult market, the enthusiastic apparel-buying Hispanic sector is a growth area. Perhaps it is time for US retailers to rethink their traditional focus on Caucasian shoppers.

Janet Wagner is associate professor, Department of Marketing, and Manouchehr Mokhtari is associate professor, Department of Family Studies, University of Maryland, College Park.