Kids and intimates were bright spots in dull year

DSN Retailing Today, August 2, 2004 by Emily Scardino

While many apparel retailers had individual results to celebrate last year, overall industry trends were nothing to shout about. They were more like something to scream about: Total sales were down across all categories, including men's, women's, children's and accessories. While comp sales did improve in a few areas, price point compression continued to adversely affect the marketplace.

Looking at a breakdown of last year's rather dismal figures, it is easiest to pick out and remark upon the few areas with positive year-on-year results, since results were so overwhelmingly negative yet again.

In women's, there were few comp increases to be found. The intimates category, which had been flat for the past few years, evidenced a decent growth surge, up 4.6% from approximately $8.129 in 2002 to $8.504 in 2003. While bra sales rose 3.1%, panty sales soared 10.1%, driven by high-margin items that hit mass for the first time, including lace boy shorts and retro-inspired tap pants. Women's outerwear also showed a surge, in part prompted by knockoffs of Marc Jacob's mini trench. Here, category sales rose approximately 7.6%, from $3.910 in 2002 to $4.209 in 2003. Accessories were also a saving grace, with chandelier earrings and related bestsellers prompting a 0.2% annual increase.

Compared to the women's business, men's was, once again, even worse off. While men's underwear, down 0.8%, was better off than most of the other areas of the menswear business, there were few positive areas to be seen. Fleece made a comeback during 4Q 2003, rising 13.1%, in part driven by the expansion of Lands' End product to "all Sears full-line stores. There were few other positive results in men's. These included almost-flat comps in men's hosiery, which showed only a 0.9% increase from 2002 to 2003, based in part on the popularity of black, navy and tan cotton socks at the mid-tier. The latter have become popular to wear with khakis in the casual workplace. Indeed, Dockers-branded socks are sold right alongside the pants at retailers including JCPenney and Sears.

Children's wear results, broken down into boys' and girls' wear, reflected the lackluster sales in the adult clothing market.

Unquestionably, 2003 was a tough year. Deflation continued taking a toll on the apparel category, as clearly indicated by overall dollar and unit volume figures from the past two years. While total dollar volume declined approximately 5.1%, from $175.141 billion in 2002 to $166.141 billion in 2003, unit volume rose 0.9% during the same time frame. Put simply, retailers are selling more for less, putting tremendous pressure on vendors and mills to perform. Remaining nameless as not to offend their important retail partners, countless manufacturers complained having to up the quality and the amount of fashion details in each item, while at the same time being expected to swallow added costs in the name of attracting more customers.

Bigger companies, such as Sara Lee Branded Apparel and VF Jeanswear, can handle the expense of putting added value into their merchandise, and often relish the opportunity, since they know it further establishes them as market leaders and enhances the reputation of their brands. However, smaller companies have not, in many cases, been able to keep up.

The numerous manufacturers that have closed their doors or slipped into Ch. 11 status over the past few years provide some validity to vendors' complaints.

To be fair to retailers, the marketplace is perhaps more competitive on price than ever in history, due to Wal-Mart's massive buying power. So, asking vendors to control wholesale prices is one of the only ways that they can keep their own numbers in the black.

However, another reason retailers have kept upping their unit volume while dollar volume falls, while still maintaining profit margins, has to do with their increasing reliance on private label. In some cases, some of the dollars go to a celebrity spokesperson, if the company is relying on their name to sell merchandise. However, sourcing proprietary lines like Wal-Mart's George or Target's Merona from plants overseas spells pure profits for these retailers, cutting out the middleman completely. They continue to create a draw with national brands, while much of the floor is devoted to house labels.

The increase in the amount of private label that retailers are assorting has lowered the average price points of various items, bringing in less overall dollars, but similar profit margins and faster turns. This has spelled good news for retail, despite its impact on vendors. After seeing Caldor, Bradlees and scores of others shutter their doors, one thing is clear: If apparel retailers do not stay in business, vendors will lose business.

On the whole, many areas of the apparel industry faltered last year. However, when quotas on goods sourced in China are lifted in 2005, billions of dollars in taxes will be saved by both manufacturers and retailers, which should significantly improve margins into next year.