What's in store for US apparel back-to-school sales?
Analysts are cautiously optimistic for apparel retailers this back-to-school season
For the second year in a row, it seems consumers are being more restrained when it comes to back-to-school shopping. But with new fashions, a shift in spending away from electronics, and a more optimistic consumer, industry analysts are cautiously optimistic for clothing retailers.
According to an annual survey by the National Retail Federation (NRF) and Prosper Insights & Analytics, total back-to-school spending per US household is expected to reach US$24.9bn this year, down from last year's forecast of $26.5bn.
And while the NRF says spend on apparel and footwear for school children and college students will also fall, the International Council of Shopping Centers (ICSC) expects a higher proportion of shoppers to buy apparel over electronics this year.
Its back-to-school consumer spending survey found 75% of respondents plan to buy apparel and shoes, while 53% plan to spend their money on electronics, including computers, phones, accessories and wearables.
Indeed, research by financial and professional services firm JLL shows 52% of consumers plan to spend most of their back-to-school budget on apparel, with 91% of survey respondents set to shop from department stores this year. Supercentres such as Target or Wal-Mart are seen coming in second, with 87% planning to make their purchases there.
Cautious optimism for apparel
Richard Jaffe, analyst at Stifel, believes sales trends have accelerated as the second-biggest shopping season of the year has progressed. This, he says, has been driven by the shift in the tax-free weeks of many States from July into August; a later Labor Day; the continuing trend of consumers buying closer to need; and consumers’ desire for new merchandise spurred by the back-to-school floorset.
Stifel predicts back-to-school apparel sales will be up in the low single digits year-on-year, driven by increased fashion newness, a more optimistic consumer and a decline in consumer spending on electronics, which Jaffe says should free up the consumer’s capacity to spend on apparel.
Following several seasons of "sameness," Jaffe believes there are numerous new fashion trends coming through this autumn, including 1970s Boho and 90s grunge. These trends, as well as an improved economy and a more optimistic consumer, should also help fuel third-quarter apparel sales, he notes.
Is the shopping season over?
While the majority of consumers have more than likely wrapped up their back-to-school apparel shopping now, global information company The NPD Group says many plan to finish it after school starts, meaning retailers still have everything to play for.
A recent NPD Group survey found September, a month which isn’t usually viewed by retailers as part of the back-to-school season, is the second biggest month cited by consumers for finishing their shopping (19%).
“Today, more than ever before, consumers are focusing their shopping on what items they need at a particular moment, rather than what they may need a couple months down the road,” says NPD Group chief industry analyst Marshal Cohen.
“The back-to-school season is a very relevant example of this spending shift. When so many consumers are planning to do their back-to-school shopping in the months not traditionally considered part of the season by retailers, it’s time to break with tradition and change the way we market and measure this shopping season.”
Meaningful promotions a must
But according to Deloitte, if consumers are content with items they already have, the two-for-one promotion may no longer entice them. “Instead, retailers will have to provide something more meaningful or exclusive that fits their customers’ needs when they are ready to buy,” says Alison Paul, Deloitte vice chairman and retail and distribution sector leader.
Indeed, NRF's survey found that of the people who have already started shopping, around half of their purchases (51.3%) were influenced by coupons, sales and promotions, down from 58% last year.
In terms of how people are shopping for their back-to-school products, Deloitte suggests they plan to use their smartphones most frequently, ahead of their laptops, PCs, and tablets. And while online shopping destinations continue to climb year-on-year and hold the number two spot (44%) behind discount/value department stores (86%), 55% of parents shopping for school children say they will research online before making a purchase in a store.
Therefore retailers, Paul says, should consider all digital interactions as not only important for online sales, but as a “key driver” for in-store purchases as well. “We’re at an inflection point in retail where digital device adoption rates are accelerating toward 100%. Once this happens, there will be no such thing as offline since consumers will be constantly connected," she explains, adding that retailers can play an influential role to “speed awareness and user acceptance of mobile payments and digital wallets”, helping to make the purchasing process easier.
Winners and losers
So which apparel retailers will be winners this year? According to FBR & Co analyst Susan Anderson, children's and active wear players are set to perform well, while teen/young adult retailers will remain pressured.
“The children’s segment is less exposed to structural shifts (international/fast fashion/pure online competition, spending shifts to experience, restaurants, electronics), is more demand driven (more replenishment in younger years), and has more substantial company-driven back-to-school tailwinds,” she explains.
That said, Anderson views active apparel and footwear as a “dominant trend”, both from increased fashion and healthier, more active lifestyles.
The children's wear players likely to come out on top are The Children's Place and Carter's. FBR & Co favours Under Armour in active apparel, given its higher exposure to children and increasing footwear presence, with sportswear giant Nike also set to benefit this back-to-school season.
In terms of athletic footwear winners, FBR & Co has high hopes for The Finish Line, given an improving assortment more skewed towards casual/classic, and the potential for solid athletic footwear market growth. In addition, Foot Locker, Nike, and Under Armour will also be beneficiaries, Anderson says.
Meanwhile, Jaffe notes that the back-to-school floorsets have improved at American Eagle Outfitters, Abercrombie & Fitch, Express, Kolh's, Macy’s, Nordstrom, Old Navy, The Children's Place and the Urban Outfitters brand, which he says bodes well for the third-quarter.
Although Jaffe believes the merchandise assortments have improved at Aeropostale, he says it is too early to declare victory; while the recent floorset at Gap's namesake brand "looks lacklustre," possibly holding back third-quarter results.
Companies: Aeropostale Inc, American Eagle Outfitters, Carter’s Inc, Foot Locker Inc, Nike Inc, Nordstrom Inc, Gap Inc, Children’s Place Retail Stores Inc, Finish Line Inc, Under Armour Inc, Urban Outfitters Inc, Wal-Mart Stores Inc
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