Krystina Gustafson / CNBC – Could shoppers finally give apparel retailers the break they so desperately need?
There’s no denying that it’s been a rough slog for the clothing industry as consumers increasingly shift their spending from things to experiences, opt for lower-price fashions and refuse to purchase an item if it isn’t on sale.
On Thursday, Thomson Reuters’ preliminary analysis found that although same-store sales ticked slightly higher in July, apparel retailers posted an 0.5 percent decline, while teen apparel retailers saw a nearly 8 percent drop.
Compounding the issue are early forecasts that back-to-school shoppers intend to spend less on the occasion this year, including the National Retail Federation’s prediction that parents of K-12 students will spend on average $217.82 on clothing and accessories. That represents a decline of 6 percent.
Despite these headwinds, a few reasons for optimism remain. For one, several new fashion trends have hit the selling floor, which should encourage shoppers to open their wallets.
For another, the NRF survey indicates that people plan to spend less on electronics this year—including fewer people who intend to buy them in the first place—marking a shift in consumer attitudes.
“[This] is a reversal of the previous consumer spending trend, where consumers focused their spend on electronics, durables and other non-apparel categories,” Stifel Nicolaus analyst Richard Jaffe wrote in a note to investors last week.
As such, the retailers who bought into the key apparel trends stand to benefit from what’s otherwise expected to be a soft back-to-school season.
Denim’s big comeback?
According to Sidney Morgan-Petro, retail editor at trend forecasting firm WGSN, there are three new juniors’ trends that should get people spending.
The first is the 1970s bohemian look, including items like flared jeans, the peasant blouse and the blanket wrap. Another is a ’90s-influenced throwback to T-shirts and jeans, and plaid shirts tied around the waist.
The third is a shift back to denim, a category that’s taken a hit due to the popularity of athletic wear. Retailers are updating the trend by focusing on stretchy offerings, and featuring in their marketing campaigns jeans that kids can move around and dance in, Morgan-Petro said.
“That’s really in response to the ‘athleisure’ trend having been so massive over the past couple of seasons,” she said.
In a note to investors last week, Guggenheim Securities analyst Howard Tubin said that he continues to be upbeat on denim, adding this fall “could be the best season we’ve seen for jeans in at least two years.” He cited new styles including boyfriend, girlfriend, flare and bell bottom jeans as potential catalysts, while adding that the skinny silhouette remains popular.
“Retailers leveraged to the category should not only see an improvement within their bottoms assortments, but a resurgence in jeans could yield add-on purchases in tops and accessories as well,” he said.
Aside from denim, Google‘s search data has identified several trends that it considers “rising stars,” including Curry One shoes, culottes and lace-up flats. On the flip side, wedge sneakers, high-waisted shorts and “bro tanks”—tank tops designed to highlight a guy’s muscles—are on the way out.
“Following several seasons of sameness, with limited merchandise newness, we believe that there are numerous new fashion trends this fall,” Stifel’s Jaffe said.
Who will win and who will lose?
Several retailers appear better-aligned with these back-to-school trends and therefore, have a greater likelihood of getting shoppers to spend in their stores.
BMO Capital Markets analyst John Morris agreed that Urban Outfitters looks well-positioned, as “the silhouette shift to wider legs and 1970s styling lends itself to Urban’s heritage in bohemian looks.”
On the flipside, caution lights are still flashing for Urban’s higher-priced Anthropologie label. That brand has been running a higher volume of promotions due to a misstep in dresses, contributing to Morris’ decision to downgrade Urban Outfitters to “market perform” from “outperform.”
Trends at Gap are also expected to remain weak, with the company saying it doesn’t expect to see an improvement in merchandise until spring. That’s when the influence of its new design team takes hold. And Morgan-Petro said traditional retailers that fail to evolve their aesthetic away from logos toward more trend-right offerings will continue to struggle.
Price will still be top of mind for consumers. And as less-expensive fast-fashion retailers such as H&M and Forever 21 continue to gain traction, it will be increasingly difficult for the industry to post revenue gains.
“Because the stores that kids and teens shop at are easier on the wallet, back-to-school spending is naturally decreasing,” said Jeff Green, president of Jeff Green Partners. “Consumers aren’t shelling out money to more expensive brands that historically captured the back-to-school market.”
Shoppers are also turning to off-price and secondhand stores to get designer fashions for less. At thredUP, an online consignment and thrift store, Vineyard Vines and Crewcuts were among the fastest-selling kids’ brands in July.
“During the year [parents are on] more of an ad hoc journey,” thredUP CEO James Reinhart said. “Back-to-school is really like a loading up on quality essentials.”
According to a study by Deloitte, discount and value department stores are still the No. 1 shopping destination for consumers during back-to-school.
And although off-price stores’ popularity rose 6 points compared to last year—resulting in 36 percent of shoppers saying they plan to visit those stores—interest in specialty apparel shops climbed 9 points to also reach 36 percent.
“That is really good news,” said Deloitte’s Alison Paul, explaining growth in specialty stores is a sign consumers are less price sensitive than they were a year ago. “I think that’s a good sign for the economy.”