Apparel And Accessories Suffer A Catastrophic 52 Percent Decline In March Sales

There is no emergency preparedness planning or business continuity plan that could have properly readied the U.S. retail market for the immediate and unforeseen shut down of its most significant revenue generator: stores. March sales declines do not bode well for department and apparel/accessories stores. Total retail sales dropped 4.4 percent in March as compared to last year, after a 7.8 percent increase in February. Department stores were hit hard with a drop of 25.3 percent and apparel/accessories stores dropped 52.0 percent year-over-year. A large portion of department store sales come from fashion businesses like clothing, shoes and accessories.

Gross margins heavily impacted with the lost sales over Easter

The lost revenue comes at the most pivotal time in the spring season, precisely when regular price selling takes place across most categories. The missed Easter sales and warmer weather selling will significantly impact the margins, especially in fashion apparel goods. A former Macy’s senior executive stated, “Early second-quarter receipts are typically one of the lighter periods. Basic commodities will likely be taken in since they have little to no margin risk. However, it is most likely that buyers and wholesalers have been in negotiation as the pandemic has escalated to reduce or cancel orders where possible. The back to school period is also crucial for many retailers, and let’s hope that happens for everyone’s sake. In general, as the nation re-opens, in all likelihood the consumers may not be re-opening their wallets as quickly.”

“Fashion is going to be the most challenged of all retail products.”

Marshal Cohen, NPD’s Chief Industry Advisor, Retail

Compounding the issue of lost revenue is excess inventory. Digital sales cannot make up the revenue loss across stores. Marshal Cohen, NPD’s Chief Industry Advisor, Retail, stated, “The gap between online sales and lost brick and mortar is not easily made up. Right now, only one third of all lost store sales across retail is coming from online. Pre-crisis, apparel had 26 percent of its business from online. So even boosting it to 33 percent right now, given the challenges of consumers being faced with the loss of jobs and shifts in their spending priorities, fashion is going to be the most challenged of all retail products.” M. Cohen continues, “The bright light is that with the stores that are open, we are seeing for the first time since Feb 28th, week to week sales growth in apparel. Albeit small, the apparel industry is finally growing rather than declining to be up 8 percent over last week (w/e 4/4)– showing us that we have hit bottom and may be starting to see the return begin for apparel in the few stores that remain open.”

Moving excess inventory becomes a priority for fashion goods

Based on the closed stores, apparel retailers have an issue with excess inventory and a supply chain of goods in the pipeline impacting gross margins. While some basic items can be packed and held at warehouses for a later selling cycle, the process of pack-and-hold will add cost to the business and can only be considered for non-fashion merchandise. Mark A. Cohen, director of retail studies and adjunct professor, Columbia Business School, states, “Fashion retailers’ margins in the near to mid-term will be held hostage by the efforts they engage in to liquidate unsold inventory. They may want to “hotel” 2020 spring and summer goods to avoid trashing their margins and further destroying whatever pricing credibility they may have had before the crisis. This assumes that they do not have to liquidate those goods as soon as the crisis lifts to raise cash. It also assumes that they are not buying and will be challenged to buy spring 2021 assortments since their organizations are largely furloughed.”

 Apparel retailers will need to develop a promotional strategy to move fashion inventory out of the stores when they reopen and be aggressive with online promotions while the stores are closed. A former Macy’s senior executive stated, “While brick and mortar stores were closed, we all saw the onslaught of promotional activity online between 25-30 percent. Once physical stores open, promotions will need to be much deeper, think 50-70 percent, to get the consumer’s attention, and get them into the stores. Making their way out of COVID-19 will be more difficult for apparel retailers than the 2008 recession. With so many people out of work, their needs and priorities have changed. Prices will need to be slashed.” Retail sales for apparel dropped 12.8 percent in 2008 compared to 2007, and it took four years for the apparel industry to return to the pre-recession sales volume. Department stores never fully recovered to the same sales levels and experienced a drop of 8 percent in 2008. 

“At the end of the day, apparel retailers will either have to deeply discount their unsold 2020 spring and summer inventory, sell it off to outlet retailers like TJX, or hotel it.”

Mark A. Cohen, director of retail studies and adjunct professor, Columbia Business School

M.A. Cohen suggests, “Pre-pandemic there was a slow-rolling and long-running consolidation of apparel and accessory department store and specialty retailers. COVID-19 is going to accelerate that process markedly. It’s likely that all of the apparel and accessory retailers that were struggling before the crisis will fail, and many that were not on solid ground may very well founder as well.”

The silver lining, at least for apparel, may be that supply and demand disequilibrium could balance out. Currently, the U.S. market is over-stored and saturated with products. The final fall-out for apparel brands could be a consolidation of retailers, closing of underproductive stores and continued growth of online markets.

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