U.S. apparel industry outlook good through 2000 CIT reports

Bobbin, Nov, 1998 by Worthy Evans

While the apparel industry may see dollar sales stagnate, consumers are expected to propel the number of units sold to all-time highs in the next two years, according to The CIT Group/Commercial Services. In its annual Apparel Industry Outlook, the commercial and consumer finance organization projects steady gains through 2000, based on strong economic conditions and increasing family income.

Overall demand for U.S. apparel reached $112.6 billion in 1997, a 4.5 percent increase over 1996. This growth, adjusted for inflation, has continued into this year and is expected to rise at a steady pace, averaging a predicted 4.2 percent through the year 2000.

Malory Pikar, assistant vice president of economic research for The CIT Group, told Bobbin that while the stock market is going through immediate downturns, the firm's projections are based on economic growth in the long term, adding that consumer confidence is still strong. According to CIT's projections, households earning above $60,000 annually account for 40 percent of total dollars spent on apparel. Total spending by this group increased 12.2 percent last year, more than twice the rate of overall production.

"Consumer confidence is increasing, and the average family income is increasing.... [Additionally,] there are more non-traditional investors in the market: People that don't normally invest," Pikar said. "Because the market was going up and up and up for about nine months, people felt rich at that point and that increased consumer confidence. When people feel wealthy, they just spend more."

At the retail level, unit sales are expected to increase by 4 percent annually, while dollar sales are expected to lag slightly. According to Pikar, dollar sales will increase at a slightly slower pace because of the increase in less expensive clothing on the market. "Imports are actually bringing down prices in apparel. So even though the actual number of items sold will be increasing, the dollar sales are going to be lagging," she said.

While U.S. manufacturer shipments are not expected to be as strong as the import growth, they are predicted to increase at an annual real growth rate of 2.2 percent through 2000. "The devaluation of Asian currencies will benefit U.S.-based apparel companies that purchase goods produced in Asian countries, but it will also make goods manufactured in the U.S. relatively more expensive and thus hurt exports," said Lawrence Marsiello, president and CEO of The CIT Group/Commercial Services.

Also noted in the projection is that women's apparel sales, which usually account for more than half of all sales, are expected to outpace sales in the men's segment through 2000. The better apparel segment is expected to lead industry growth, due to the vigorous marketing efforts of manufacturers geared toward increasing consumer demand for brand name clothing, Marsiello said. "When a manufacturer's brand succeeds in establishing a quality image, it can build customer loyalty and secure repeat sales."

The most notable retail marketing strategy is the use of in-store shops to lure customers back into department stores, which enables retailers to design, source, market and display their own unique brands (see "In-Store Shops Up The Ante for Apparel Brands," September '98 Bobbin).

TABLE 1

OUTLOOK FOR APPAREL
Projections of Shipments and Demand through 2000, Adjusted for
Inflation

                                   1997      1998      1999     2000

U.S. Manufacturer Shipments

1997 U.S. dollars (billions)      71.95     73.24     75.12    76.76
Percent change                    -2.30      1.80      2.60     2.20

U.S. Demand

1997 U.S. dollars (billions)     112.62    119.78    123.35   127.42
Percent change                     4.50      6.40      3.00     3.30

Import penetration (percent)         45        47        47       48

Source: U.S. Census Bureau; The CIT Group

"In the department store segment we have witnessed several manufacturers regaining retail space from private label brands. The services offered by a highly efficient manufacturer, in some instances, cannot be effectively replicated by a retailer," Marsiello said. He also noted that highly efficient manufacturers have an advantage in the retail marketplace because they have a very significant input in design, can better control product rotation, and can eat losses from slow-moving products.