Today’s post is guest-authored by Nick Egelanian, a leader in the retail and shopping center industries.
These are perilous times in the apparel sector. What seems on the surface to be a contradiction–a series of underwhelming sales reports in apparel sales, coinciding with a dramatic and ongoing expansion in many types of apparel retailing – are in fact the byproduct of an evolving retail segment sending up red flags for apparel retailers going forward.
The disconnect is particularly noticeable in discount and budget apparel, which continues to grow at a pace that far exceeds overall sales. Commodity brands like T.J. Maxx, Marshalls, Nordstrom Rack and Ross Stores are opening over 250 stores annually. On the specialty side, familiar names like H&M, Zara and Forever 21 (F21 red) accompanied by newcomer Primark are driving expansion. Outlet center expansion only adds further to the surge in discount apparel.
A race to the bottom
One of the clear trends in apparel right now is a “race to the bottom” on price, which is crowding out full price apparel and producing clear winners and losers in the segment. Discount brands are gobbling up market share while full price brands and department stores are losing ground. It is no coincidence that iconic names like J. Crew and GAP are focusing their expansion resources almost entirely on off-price stores.
Online competition is another issue apparel retailers are wrestling with. Online and mobile transactions make up approximately 25 to 30 percent of all apparel sales, a far more significant figure than the 7 to 8 percent overall number for the entire retail industry. This disparity is likely due at least in part to a segment where shoppers are accustomed to exploring omnichannel options for size, color and bargain hunting flexibility. Whatever the reason, the fact remains: brick-and-mortar apparel retailers already trying to adapt to a discount-dominated marketplace now have to face additional competitive pressure from virtual vendors.
What does it mean?
The big question remains: what do these developments mean for apparel’s future? With outlets and discount concepts growing at an eye-opening pace, and these trends showing no signs of slowing, mid-market brands and department stores will continue to struggle to respond. Even discount adaptation success stories like Nordstrom Rack have delivered weak numbers lately, and there isn’t much evidence that other brands can do much better.
As a result, brands like Aéropostale, Abercrombie & Fitch and Gap Inc. will tread water and will likely continue to lose market share. The forecast for department stores is even more dire. Icons like Macy’s and J.C. Penney, already in the midst of decades-long market share slumps, will almost certainly cede even more ground and the ripple effects will be profound as struggling B and C malls are especially hard hit with the loss of hundreds of additional department and full-price apparel retail outlets, leading more and more second tier regional malls into obscurity in the coming years.
As always in retail, however, challenges for some create opportunities for others. Federal Realty’s Assembly Row in Boston has redefined the discount retail venue, successfully combining entertainment and restaurants with outlet style apparel in a mixed-use shopping venue. Assembly Row demonstrates that adapting to new retail realities requires innovation and inspiration. In retail as in life: you evolve or you go extinct.