Steeper discounting of retro fashion merchandise suggests the trend could be on its way out—and that could mean trouble for some apparel brands.
According to Wells Fargo analyst Ike Boruchow, momentum in the apparel sector saw an uptick last year that started to slow during holiday, and continued to moderate through 2019. The interest in apparel was fueled by several trends, like the revival of retro.
Now the analyst says “looking back over the past several months, we are beginning to view this trend as waning, carrying incremental risk to the brands that support it.”
This re-emergence of brands and styles from the late 1980’s and 1990’s provided newness in 2018 helped drive fickle fashionistas to update their closets. But Boruchow, in analyzing data on the apparel and retail firms in his coverage world, now thinks the retro trend may have already peaked and that “could have an outsized negative impact on companies that have been meaningful beneficiaries of this fashion wave over the past year.”
Hanesbrands Inc.’s Champion brand is one that could see some impact, as well as others, like PVH Corp.’s Tommy Hilfiger brand, according to Boruchow. That’s because Urban Outfitters Inc. noted in its second quarter 2017 earnings call that it was working with the brands for product exclusives. A year later, Urban gave a shout-out to its partnerships with Champion, Adidas and Fila for helping the retailer garners its best post-recession comp in the second quarter of 2018.
Urban Outfitters Inc. is known for recognizing early on what the new fashion must-haves are, and then jumping on the bandwagon before others catch-on. But that makes its same-store sales performance volatile because the company is willing to make big fashion bets–great when they get it right and not so good when markdowns are needed to clear out inventory.
And because of that, Boruchow uses Urban as the bellweather to check on what’s no longer an of-the-moment fashion trend. The retail chain has been discounting “retro” brands in what Boruchow suspects is an effort to clear out excess inventory.
The discounting began in June, when the specialty chain first advertised brand-specific discounts for the Tommy Hilfiger, Calvin Klein, Champion, Adidas and Fila brands. Those discounts got steeper, and according to Boruchow, “more recently this week, we note another brand-focused promotion calling out the same retro labels,” with many now up to 40 percent off.
Wells Fargo data shows Urban’s comps peaked at 15 percent in the second quarter of 2018, but fell to just 4 percent in the fourth quarter. The quarters reflect the retail calendar that typically ends in late January or thereabouts for most retailers. And, Boruchow said, the retro trend was a driving force for the comps gain.
That kind of discounting had the analyst digging deeper, this time looking at consumer engagement through Google trends. He concluded that “consumer preference for this trend has decelerated meaningfully over the past 12 months.” Growth in Google searches for “retro” peaked in the third quarter of 2018 after reaching a 61 percent year-over-year growth, but in the second quarter of 2019 fell to 17 percent, or what Boruchow perceives as the slowest growth rate since 2015.
That impact of that kind of deceleration would hurt the brands that have benefited from consumer interest in the trend.
Hanesbrands, Boruchow said, has outsized risk due to its Champion retro products, and Champion and Fila seem to be driving the retro deceleration the most. Google searches for the two brands are still growing, but at a slower rate than before. Both might have had more searches than other brands since they may also have benefited from being part of the ongoing athleisure trend. Another negative for Hanesbrand could be its acceleration in marketing investment for Champion to fuel growth. But if retro is falling out of favor, then that investment “could be coming at the wrong time,” Boruchow noted.
Google searches for Champion over the last 12 months fell to 22 percent in the second quarter of 2019 from 82 percent in the third quarter of 2018, according to Boruchow. Separately, the analyst said he also tracked Champion’s Instagram engagement since the first quarter of 2017. The second quarter 2017 saw Instagram engagement up 1,048 percent, but it has been decelerating since then. For the same Google tracking period, Instagram engagement dropped to just 28 percent in the second quarter of 2019, substantially below the 105 percent level reached in the third quarter of 2018.
Google searches for Fila in the same 12 months fell to 59 percent from 165 percent. And Champion and Fila weren’t the only brands that sold retro merchandise at Urban to post declines in brand name searches on Google. Tommy Hilfiger fell to down 6 percent from up 8 percent in the same 12 months, while Adidas has seen a negative search pattern from six consecutive quarters. It was down 6 percent in the third quarter of 2018, and fell even lower to down 15 percent in the fourth quarter. For the second quarter of 2019, searches of Adidas have improved, but is still down at a negative 7 percent. Adidas has already seen a retro slowdown in Europe.