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Mass Merchants Are Swiping Market Share from Apparel Retailers

The COVID-19 pandemic has impacted apparel and fashion in various ways, but many have argued that the crisis only accelerated what was already inevitable. One such trend that had occurred in the years before the pandemic was a major consolidation of retail market share, in which shoppers increasingly prefer mass merchants for their apparel shopping needs. According to a report from Deloitte, the top 10 U.S. retailers gained market share at a combined 3.2 percent from 2017 to 2019, driving the overall market consolidation, as mid-sized retailers ranked between 50 and 230 lost 2.3 percent.

With the closure of non-essential physical retail locations due to COVID-19, consumers shifted spending to select physical and e-commerce retailers that could provide essential goods, further putting more sales in the hands of mass retailers. Worse for apparel retailers was that they couldn’t stay open while their mass-merchant counterparts could, enabling larger retailers to capitalize on sales of apparel and footwear in the store.

“As you think about apparel, that idea of consolidation is going to find its way through here in particular, because there’s been a concentration of share with the mass retailers,” said Kasey Lobaugh, chief innovation officer for retail and distribution at Deloitte Consulting. “Many apparel retailers were closed down, and meanwhile the largest mass players were allowed to stay open and sell T-shirts. Guaranteed—there’s been this additional acceleration of consolidation of market share post-COVID.”

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Consolidation in apparel is happening four times faster than it is in grocery, according to Deloitte, which doesn’t come as a surprise given how many recent apparel retailers and department stores have filed for bankruptcy, have started liquidation sales or are still expected to file. With Amazon ranking as the “most-shopped” retailer for apparel, and Walmart and Target coming in second and third according to Coresight Research, more industry sales are coming directly through mass merchants instead of pure apparel retailers.

Convenience’s role in mass merchants outgunning their peers

The Deloitte report highlighted that prior to the pandemic, convenience continued to be a major driver of retail sales. In fact, the firm estimates that from 2016 to 2019, retailers offering convenience as a major component of their value proposition drove 67 percent of total market growth.

As the crisis escalated, the idea of “convenience” is increasingly being defined by contactless shopping, on-demand fulfillment and inventory availability, with more than 50 percent of consumers saying they spend more on convenience to get what they need. As such, there has been a surge in mobile payment usage, delivery app downloads and buy online, pick up in-store (BOPIS) adoption.

While traditional apparel retailers have slowly integrated these options into their store offering, mass merchants once again reign supreme here, as they’ve increased their apparel offerings on top of any new e-commerce or fulfillment capabilities they invested in.

“Mass merchants have actually made strides in both value and style as it pertains to their assortment of apparel, but they are a convenient option,” Lobaugh said. “When you look at the formats for retailers that are perceived to be more convenient, they are actually growing their share of apparel. I know that it’s easy to think about convenience as sort of a tactic—if I’m an apparel retailer I may ask, ‘What tactic can I implement that’s convenient?’ But at the same time, you have to recognize that convenience is bigger than tactics.”

However, Lobaugh did point out returns, free shipping and improved product recommendations as tactics that apparel retailers can offer to burnish their convenience credentials.

COVID’s effect on resale, rental models is still too early to tell

Another major trend highlighted in the report was that new business models are having a larger impact within retail. But the pandemic’s effect on apparel sales has slowed the overall growth of the alternative models, with Deloitte calculating that overall apparel sales decreased 73 percent as of April 4. The report notes that deceleration of growth in these business models could continue to occur due to health concerns that prompt consumers to rethink resale and rental models.

“There’s competing forces that we will need to monitor and understand going forward,” Lobaugh said, “There’s the economic bifurcation of the consumer—the rush to value. Clearly, things like rental, reuse are fueled by the consumer’s appetite for value. Given the acceleration of the bifurcation because of the COVID impact, you would expect the desire or need for value would accelerate. Conversely, you have health concerns, and we don’t know yet what impact will a shopper’s health concern have on various purchasing options. As those two forces come together and the consumer reconciles with their needs on both of those fronts, we’ll have a better sense of whether those business models are more or less impacted.”

Shoppers already have shown hesitation for wearing clothes worn by others since the pandemic started, with 65 percent of women and 54 percent of men saying they would not feel safe trying on clothes in dressing rooms, according to a survey from First Insight.

Nevertheless, the combined rental, subscription, flash sale, and resale apparel market is still anticipated to more than double from $22 billion in 2018 to $46 billion in 2023, Deloitte says. These alternatives are projected to continue to amass an additional 1 percent of U.S. apparel market share annually each year through 2023.

As products get commoditized, retailers shift to private label

The report highlighted both the commoditization and premiumization of products as a future trend to watch, indicating that there has been a 0.4 percent average decrease in operating margins across retail since 2017. Apparel, footwear and specialty retailers have suffered the worst of the bunch with a more than 0.6 percent average decline.

The increased operational, infrastructural and labor expenses are raising the cost of producing the very same products and are encouraging more companies to sell private-label products, which can offer 30 percent higher margins than traditional brands.

But while 40 percent of consumers were willing to pay the same or more for private labels in 2019, the reported noted that spending behaviors and drivers differ by category when consumers perceive a worsened financial position, explaining the hit to apparel sales throughout the pandemic.

For example, in the face of economic uncertainty, while grocery shoppers may buy less expensive brands, apparel shoppers will instead just buy fewer items in total. And even in better financial times, most apparel shoppers typically buy in higher volume, as opposed to looking for new or premium brands. Between 2017 and 2018, “value brands” saw revenue increases of 2.5 percent, while premier brands saw a 7.1 percent decline.

Lobaugh noted once again that mass merchants have a private-label advantage over their apparel and department store peers, and doesn’t believe the importance of this trend should be ignored even if shoppers may be inclined to buy less during the pandemic.

“Many of the brands that exist in the mass channel are private label brands, and the sheer fact that they’ve grown share in the apparel to the extent they have is actually very telling in terms of the private label trend that you’re seeing in apparel,” Lobaugh said. “You don’t see it as much in the traditional apparel retailers, but you do see it. National brands continue to hold favor, but if you were to take the pie chart of national vs. private label, the growth of mass has certainly fueled private label in the overall market, not just the mass channel.”

The trends highlighted in the report were built based on analysis done by Deloitte’s InSightIQ, which actively monitors and aggregates a diverse set of real-time consumer, macro, marketplace, competitive and economic data sets to better predict how and when brands can win in the marketplace.

InSightIQ looked at more than 450 billion consumer location data points, $150 billion per year in credit and debit card transactions, sales and channel data for more than 10,000 brands, 100,000 survey responses, economic factors, weather and hundreds of other traditional and nontraditional variables to make predictions about the directional trends and drivers of consumer behavior.