Fall sales surge: cold weather, fewer promotions prompt uptick

DSN Retailing Today, Oct 27, 2003 by Emily Scardino

Happy times are here again for apparel retailers, based on some outstanding results this back-to-school, and they may be here to stay. "The long-awaited bounce in economic activity has finally arrived," said Rosalind Wells, chief economist at the National Retail Federation (NRF).

One of the strongest reasons Wells gives for dramatic sales improvements is "pent up demand for apparel."

The NRF predicts total holiday retail sales will rise 5.7% in 2003, versus only 2% in 2002, to an estimated $217.4 billion this year. This average is positive despite accounting for the slowest growing retail segment: department stores. Even Federated showed improvement this back-to school, with a 3.2% increase in comps, after flat (0.0%) same-store sales during '02.

Analysts across the industry agree that the outlook is bright. For instance, the Smith Barney Broadlines index increased 5.8% in September, above forecast.

Results are not just good relative to the lackluster results that retailers have experienced over the past three years--they are, in their own right, good. Double-digit comps were almost commonplace this September, especially in the juniors market, where PacSun and Hot Topic, Abercrombie & Fitch and The Buckle confirmed to impress Wall Street. Results are expected to hold strong through 4Q.

Overwhelmingly, broadline retailers including Target and, needless to say, Wal-Mart, experienced extremely strong results this back-to-school. However, the clearest sign that apparel is making a comeback is evident in the superb results earned by apparel specialty retailers.

This year, the question on everyone's mind is, "What went right?" Besides external factors such as unseasonably cold weather in the Northeast, which drove high-ticket outerwear sales before planned markdowns, retailers made internal adjustments this year that proved meritorious.

One strategy that proved effective for a number of specialty players was cutting back on 20% or 30% off friends and family promotions, which proved unfriendly to the sale of full-priced merchandise.

"Customers have been conditioned to wait for that coupon, but once they realize that that coupon isn't going to come, they will buy apparel, out of impulse or out of need," said Brian Tunick, specialty retail analyst at JPMorgan.

Retailers held their breath and took a stand against heavily promotional retail this fall, with very positive results.

"Our results for the month are even more encouraging given that we did not repeat the Friends & Family and Place Dough promotions we held in September of last year," said Ezra Dabah, chairman and ceo of The Children's Place.

This retailer experienced a dramatic comp-sales increase of a record 30% during the September time frame, versus a 30% decrease in September 2002.

Likewise the Cap cut back on Friends and Family promotions this year, posting a 13% comp-store sales increase this September Since management reports that initial pricing is flat compared to 2002,it's obvious that the company is selling less promotionally.

Though fashion is still driving sales, and will continue to do so from the mass-market level on up, apparel is also a need-based category. Even customers who cut up their credit cards apparently broke down and replaced their well-worn clothing this fall.

Finally, it is good news: The apparel industry is emerging from one of the darkest periods in its history--more streamlined and efficient than ever. The result should be better sales than ever, if consumers keep buying.