As the Great Recession disappears into the rear view mirror, there is a growing sense among industry experts that its impact on consumer behavior might be longer lasting than originally anticipated.
In a panel discussion to a standing room only crowd at the Sourcing Journal “Insight & Outlook” summit in New York Tuesday, Alix Partners managing director David Bassuk, along with Cowen & Company’s CFA and director, John Kernan and managing director, Faye Landes, reflected on the recession’s transformative impact on shoppers and, in turn, on the current state of apparel retailing.
According to Bassuk, the effects might even be permanent. “People are changing the way they’re spending money. Store traffic is down, both online and offline, and volume is down. People are more interested in spending money on things like healthier fast food at Chipotle than on apparel.”
Although employment has improved, corporations are earning record profits, and stock values (notwithstanding the most recent malaise due to political instability in the Middle East, Ukraine and Hong Kong) are at record highs, spending on apparel and footwear has remained sluggish.
While part of this is due to slow income growth, other factors like changing attitudes and values, and the ease of shopping around for cheaper prices are also to blame.
Apparel market growth is running in the very low single digits, between zero and 2 percent by some estimates, so retailers must take share from competition in order to grow. A decade ago, department stores had a 10 percent share of retail sales, according to the U.S. Census Bureau. That share has declined to 5 percent today. Off-Pricers like TJX and Ross had less than half a percentage point of the total before the recession, but have since doubled their share of retail sales.
Cowen’s Landes said, “The recession had a lingering effect on the consumer psyche. The habits formed in the 2008-2010 period, of trading off of time for money by looking for bargains, are here to stay for a lot of consumers. Younger women are shopping more in off-pricers. You didn’t have that before the recession.”
The speed with which fast fashion players have gained market share is another example of the changing values. According to Landes, teens and Millennials love the simplicity of H&M and Forever 21’s pricing models, which have helped them gain share from the mall-based specialty retailers. “Last winter we did focus groups in Phoenix and in central New Jersey. We found out that these girls LOVE having lots of clothes. They wear an outfit at most twice. The fact that you can’t wash that dress from one of these stores 10 times, or that the ring from Charming Charlie turns color after a few wearings doesn’t affect them one bit.”
The growth of e-commerce and omnichannel retailing have had a huge impact on consumers because of the myriad options they provide and the transparency into pricing. According to Bassuk, the real leaders will need to figure out how to make money on e-commerce. Amazon, which industry experts estimate does an estimated $8 billion in clothing and accessories sales (much of it through third party sellers) remains the U.S. industry leader, but that might change with Alibaba’s arrival. The Chinese Internet giant is, he says, “Bigger, grander, and more capable than anything in the U.S. market. It will impact us quickly and in a big way.”
During the conference, new reports hit the airwaves that eBay would spin off its Paypal division as a separate company, which immediately caused many to speculate that the payments platform might be an attractive acquisition candidate for Alibaba.
Regarding the upcoming holiday season, panelists were reluctant to give a quantitative growth figure, saying that what mattered more than the numerical growth rates was the fact that some of the changing consumer demands that have taken shape in recent years will only intensify.
Bassuk said the retailers Alix Partners works with are planning a much more promotional holiday season. More will use social and digital marketing to aggressively engage and target consumers. He said that Walmart will be even more aggressive than in the past, attempting to steal market share from Target, whose recent top management changes happened too late to impact holiday.
Landes added, “With the Apple watch not yet ready, there’s no must-have item, so we will see more of the same…with more promotions.”