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Fashion’s New Cycle: What to Know and Which Brands Could Benefit

Fashion is at a crossroads: continue with cutting-edge strategies developed to persevere during Covid or slide back into familiar (yet unprofitable) habits? Get the experts' perspective at our in-person Sourcing Summit, Oct. 19 at New York’s Cipriani 42nd Street.

Fashion is in the early innings of a new cycle, a development that augurs well for a sector in need of a home run.

Janine Stichter, a veteran retail and apparel analyst for Jefferies, believes the first signs of fashion’s evolution emerged in 2018 and 2019, before Covid-19 convinced consumers to live in loungewear for the past year. Denim and new silhouettes in bottoms, she added, are leading the shift and will likely catalyze sales in adjacent, complementary categories like footwear and tops.

Now that America is lurching toward “reopening” from coronavirus disruptions, Stichter believes shoppers want to refresh their wardrobes, update options to accommodate any pandemic-related weight fluctuations or purchase new outfits for social calendars that could be filling up again.

That bodes well for retailers selling apparel. Retail sales across the country in March leapt $619.1 billion, or a seasonally adjusted 9.8 percent from the prior month, marking the sharpest uptick since May when stores began reopening after the first wave of lockdowns. Many credited federal stimulus checks for March’s robust data, raising questions over whether consumers could sustain their spending throughout the year.

Stichter believes there’s good reason for retailers to be optimistic in the near term.

Fashion undergoes a silhouette shift about once every decade, she said. “When they do occur, they tend to drive an overhaul in the consumer’s wardrobe,” she added, and have a “long tail” powered by younger consumers quickly embracing trends that then infiltrate the mass market in subsequent years.

This kind of “macro” shift that would drive a mass restocking cycle and benefit retailers. And the upheaval underway in the bottoms shoppers now favor has heralded similar fashion shifts in the past.

According to Stichter, pants and their proportions speak volumes about recent style history. After bell-bottoms dominated the 1970s, tapered-leg jeans surfaced in the late 80s through the early ‘90s, only to be replaced in the mid-90s by the wide-leg, low-rise boot cut and flare leg styles that commanded the market through the early 2000s. Skinny jeans and leggings controlled closet share in the late 2000s through 2018 when their popularity began to waver.

Straight-leg silhouettes showed signs of supplanting the almighty skinny in 2018. Though NPD data shows that skinny jeans still command the largest share of U.S. women’s jeans, at 34 percent, straight and wide-leg jeans are eating away at its one-time supremacy, Stichter said. As consumers search for ways to look pulled together, yet comfortable, the “soft dressing” look that includes fluid non-denim bottoms has also performed well, she said. That doesn’t mean that items such as leggings will go away, but rather that the athleisure category is unlikely to see the same level of growth it has enjoyed in recent years, she concluded.

In the U.S, jeans sales slumped by $5.5 billion over the past five years, with $4 billion attributed to Covid last year, while sportswear rose to over $20 billion in volume. But Stichter now sees a reversal in the fortunes of the jeans market, with growth set to outpace both sportswear and the broader apparel market over the next two years. According to a Euromonitor report, Target, Old Navy, American Eagle Outfitters, Lee and Gap were the top women’s jeans brands by U.S. market share were. Levi’s, Wrangler, Old Navy, American Eagle Outfitters and Rustler led the U.S. men’s market.

Hailey Bieber steps out in straight-fit cuffed denim.

Hailey Bieber steps out in straight-fit cuffed denim.

Field checks from the retail team at Jefferies and from other data points including online search interest, web traffic and company commentary suggest that the cycle is just beginning. Just as important, the shift in bottoms should see a corresponding uplift in purchases for new tops, footwear and accessories to complement the new silhouette, Stichter said. While the corresponding shifts in other fashion categories won’t be immediate, the analyst believes that the move to less narrow, skinny bottoms will lead to shorter, more tailored tops and chunkier footwear options.

Social gatherings are coming back, and they’re driving fashion, too.

“We also see evidence of the return of weddings and other social gatherings,” Stichter said, noting that wedding registries are seeing a surge in web traffic, likely reflecting delayed or rescheduled nuptials that are once again moving forward.

A study from The Knot of nearly 8,000 couples found that 30 percent of those who planned a 2020 wedding pushed their reception to a later date, while 15 percent postponed the entire wedding to 2021. And Stichter pointed to other going-out get-togethers, such as a bump in event ticket sales, indicating the return of occasions to mix and mingle. Urban Outfitters, Macy’s and Revolve executives have recently reported signs of life in sales of dresses and occasion wear.

Companies in Jefferies’ equity coverage universe that could benefit from the fashion shift include Abercrombie & Fitch, American Eagle, Urban, Gap, Guess, Revolve and Steven Madden. In the department store channel, a fashion shift could benefit Nordstrom, Macy’s and Kohl’s, as well as Target.

Economic data points indicate that there’s hope for fashion as the outlook remains positive for the U.S. consumers. Jefferies chief economist Aneta Markowska cited sharply declining jobless claims and robust monthly payrolls performance.

A study from Influence Central, which surveyed 490 consumers in late April 2021, found that vaccination progress is stimulating a return to normalcy. In the study, 30 percent said they plan to dine indoors at restaurants less than once a month, while 26 percent will up to twice a month. When it comes shopping, 51 percent plan patronize nonessential retailers as needed, or less than once month, while 22 percent plan to do so infrequently, or up to twice a month. Of the respondents, 45 percent said they have some kind of in-person even planned within the next six months.

Separately, Columbia Threadneedle Investments on Monday said its Return to Normal Index rose to 72 percent as of May 1, 2021, up from 58 percent at the start of the year. The index tracks activity in the U.S. from travel to return to work, brick-and-mortar shopping and eating out, relative to pre-pandemic levels. Current analysis suggests the U.S. has reached an immunity range of approximately 70 percent through a combination of vaccinations and prior infections. Data from the Index suggests that the U.S. could hit 90 percent of pre-pandemic levels of activity by August 2021, or possibly in November if variants continue to spread and vaccine uptake slows.

Also on Monday, the National Retail Federation said the U.S. economy is on firm footing and could see its fastest growth in more three decades.

“While there is a great deal of uncertainty about how fast and far this economy will grow in 2021, surveys show an increase in individuals being vaccinated, more willingness to receive a vaccination, increased spending intentions and comfort with resuming pre-pandemic behaviors like shopping, travel and family gatherings,” Jack Kleinhenz, NRF’s chief economist, said. “This feel-better situation will likely translate into higher levels of household spending, especially around upcoming holidays like the Fourth of July and spending associated with back-to-work and back-to-school.”

NRF is forecasting 6.6 percent economic growth in 2021, which would be the highest level since the 7.2 percent growth rate in 1984. Kleinhenz said consumers are sitting on a stockpile of cash that could become a “spring-loaded spending mechanism.”

“Among other favorable indicators, the $2.4 trillion saved by households during February alone was approximately twice the average monthly savings during pre-pandemic 2019 and comes on top of savings accumulated over the past year as consumers stayed home rather than dining out, traveling or attending sports and entertainment events,” NRF said.

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