Women joining the workforce in huge numbers was a cultural game changer and fueled growth in women’s apparel brands in the 1980s through the early 2000s. Specialty retail brands like Ann Taylor and Chico’s opened hundreds of stores to meet women’s professional wardrobe needs. However, things changed when the internet came into its own in the early 2000s and digital retailers provided more choice. At the same time, women were less interested in broadly distributed brands. Retail was soon forced to evolve to meet the needs of aging of baby boomers, casualization of the workforce and competition from fast-fashion and online retailers – the triple crown in negative impact on the women’s apparel market. Thus, the perfect storm: women’s apparel has been one of the hardest hit sectors in retail. The demise of the sector has been profound with shuttered brands, store closures, bankruptcies and declining profit margins.
Fast forward to 2018 and the former stalwarts of women’s wholesale apparel, Liz Claiborne and Jones Apparel, plus many of their offspring are all but dead. But look at the long tail and several specialty retailers continue to fight the good fight albeit in smaller footprints and with reduced profit margins. Success in the future will depend on the ability of these brands to stand out in a crowded retail field and be relevant to the markets with the most disposable income: younger, wealthier consumers. Some specialty retailers may try to win by selling volume to older and lower-income customers, but these shoppers spend significantly less on apparel than their younger, wealthier counterparts.
It’s Tough Out There
The competition to survive is intense. The U.S. is the largest retail market in the world representing about a quarter of the world’s consumer spending. However, the U.S. has significantly more square footage per capita than in other countries. As a result, retail sales per foot are the lowest of all major markets ringing in less than half of the average in other developed countries.
The average U.S. household spends about $571 per year on women’s apparel. However, there is a significant disparity in spend. The lowest income households (10 percent) spend only $312 while the richest 10 percent spend $1,286 on women’s apparel. This all nets out to the top-10 percent of households accounting for 23 percent of all women’s apparel spending in the United States. Advice? I’d follow the money.
Who’s Spending the Most?
Households headed by millennial consumers, 35 or younger, spend $467 per year on women’s apparel — less than the average of $571. Gen X is in its prime years of spending: Households age 36 to 50 spend $750 per year on women’s apparel – the most of any group. Younger boomer households (age 51 to 70) spend an average of $598 on women’s apparel. But after age 70, spending drops significantly. Gen X- and millennial-headed households, aggregated, spend 21 percent more on women’s apparel than all older customers combined. But demographics are shifting sands. Gen X and millennial share of women’s apparel will rise meaningfully as boomers age out of the workforce. And demographics don’t consider lifestyles, attitudes and values. There are pockets of high spenders in all these demographic breaks led by consumers’ behavioral preferences. Do you market to a demographic? Or a mindset?
Digital Strategies Won’t Fix Bad Store Portfolios
Women’s retailers have scrambled to grow online while underinvesting in stores. Women’s retailers average over 20 percent digital sales penetration and yet they continue to struggle financially. While digital will continue to take share from physical stores, we think stores and digital need to work together to best meet customer needs. Witness all the digitally-native brands rushing to open physical stores – the physical store is not dead. But to remain relevant, physical stores are raising the bar on customers experience. Multichannel retailers are finding it difficult to generate acceptable return on heavy capital investment needed to make stores beautiful unless they can drive enough sales in the store.
Location is Everything
Brick-and-mortar apparel retailers located in more densely populated, wealthier areas are better positioned for success. You have to be opportunistic and strategic when it comes to location. Anthropologie, Ann Taylor, and J Crew are located in higher value markets than other women’s retailers. They and other savvy retailers choose markets with significant women’s apparel spending, younger customers and relatively little competition for women’s apparel dollars. Conversely, White House|Black Market, Dressbarn, Banana Republic, and Chico’s are poorly positioned. These stores are typically located in less dense markets with less affluent, older customers and high competition for more limited apparel dollars. As a result, the leaders have 35 percent higher sales per square foot than the laggards. The leaders also have fewer but bigger stores. The prevailing trend is for women\’s retailers to continue to close stores. It’s going to be especially rough for retailers to reverse their disadvantaged market strategies in terms of customer base and location.
A Cautionary Tale for Future Apparel Retail
Some retail formats — dollar stores, off-price, or home improvement — open successful stores in small markets by monopolizing the market they enter and spending relatively little on the physical build-out. But the recipe for apparel success is to focus on fewer, high-value stores. Retailers need to invest in understanding their unique point of difference in the market, and from there, determine who are their very best customers. Concentrating investment on the markets with the highest number of potential customers, combined with the fewest other retailers going after those customers, will generate higher returns. Keep an eye on where your customers are in their lifecycles. Any retailer targeting lower-income customers or customers beyond their core spending years will need to work twice as hard to achieve the same results. Gains in digital market share necessitate fewer stores. Make the stores you do open (or keep open) count.