A customer buys shirts from American Eagle Outfitters in San Francisco.
David Paul Morris | Bloomberg | Getty Images
Warehouses and stores at many retailers are overstocked. But buyers are still paying more to upgrade their closet.
Clothing prices up 0.8% in June compared with May and up 5.2% year on year, according to the Bureau of Labor Statistics CPI on Wednesday. Overall, inflation, which includes everyday items such as food and gasoline, rose 9.1% more than expected compared to last year.
Clothing trends are another mixed indicator as economists and industry watchers try to gauge the strength of consumers and the US economy. In recent weeks, many well-known companies and investors have been warning of a recession. Retailers including Target, Gap and Walmart have announced plans for additional discounts to get rid of unwanted items. These moves were expected to be deflationary.
However, clothing sales and prices – at least for now – are above last year’s levels. The labor market also remains resilient, with the June jobs report dismissing fears of a recession as the unemployment rate remains flat and wage bills beat expectations.
“It’s all about the experience,” says Kristen Classy-Zummo, an industry analyst who does fashion for The NPD Group. “The return to getting out of the house is what is really driving the growth of the clothing market. It’s an experiential resurgence that we still haven’t seen in full last year.”
Some retailers are also reporting this. Revenue Levi Strauss & Co. rose 15% year on year for the quarter ended May 29. However, its budget brands, which account for a small portion of the company’s total sales and are sold by Walmart, Target and Amazon, have reached the middle ground. The figure is down from last year, CEO Chip Berg said.
Walmart also experienced a split in the apparel category. In the first fiscal quarter, the company aggressively discounted some of its apparel as shoppers ditched discretionary merchandise. However, the company’s head of merchandising, Charles Redfield, told CNBC in early June that the big-box chain couldn’t keep up with demand for its more fashionable and pricier brands, such as Scoop sundresses and tops.
Abundance of wrong things
U.S. apparel sales rose 5% year-on-year between January and May and are up 13% from the same period before the 2019 pandemic, according to research firm NPD.
Formal wear in particular has become popular again, she says, as Americans go to weddings or spend more time in the office. When shopping for such occasions, some consumers are willing to buy products that are not on sale.
According to the NPD, sales of women’s dresses are up 42% year-on-year from January to May. This is also 14% higher than in 2019, before the pandemic.
This shift in consumer preferences hurt retailers who were stocking the wrong things. Gap, which announced this week that CEO Sonia Singal stepped down, saying in her latest earnings report that customers don’t want the company’s many fleece hoodies and sportswear. It also had a customer size mismatch as it made a push towards larger sizes.
Abercrombie & Fitch and American Eagle Outfitters reported a sharp jump in inventory levels, up 45% and 46% respectively, from last year due to a combination of items not being sold and reduced supply chain delays.
Typically, an abundance of inventory triggers higher levels of promotions — something that is already happening at Walmart and Target, not just in apparel but in other categories like homewares. Retail sales data for June, another closely watched economic indicator, will be released by the Commerce Department on Friday.
Clothes show some however signs of a rollback. As apparel sales rise in dollar terms, the number of units is down about 8% year-over-year, according to NPD, which could lead to lower sales over time, according to the NPD.
A survey by research firm Jefferies in June found that about 35% of consumers are planning or currently buying less clothing.
The survey also showed a split between consumers. Those making $100,000 or more a year said they plan or currently spend less on services like restaurants and travel. People with lower incomes were more likely to report that they were already cutting back on clothes and groceries.
‘A Tale of Two Consumers’
A year ago, clothing retailers had several factors that ultimately played in their favor. Americans got extra dollars from stimulus checks. Some were still wary of spending those dollars on big trips, restaurants, or other services due to Covid concerns. The supply chain clings to limited inventory levels.
Retailers had a chance to “reset” and break the “vicious sales cycle,” Classi-Zummo said. All of this contributed to retailers selling more clothes at full price.
Now, she says, clothing retailers have to pass on much of their costs, such as higher prices for the raw materials used to make clothes or the gas needed to transport them. This led to higher prices for shirts, dresses and more.
Higher-income shoppers help support clothing sales as they still have the funds and willingness to pay for more expensive brands and full price clothing items. According to Classi-Zummo, this may partly explain the inflated clothing prices.
For example, swimwear sales have declined overall after a sharp rise last year. But this year, the fastest growing segment is swimwear under $100. The NPD found that swimwear under $70 was causing a drop from last year.
“It’s kind of like a story about two consumers,” she said. “The lower-income household consumer might think twice about buying clothes, whether they’re on sale or not. The higher income consumer hasn’t been hurt yet – they are still buying at a higher price. The luxury goods market is still on fire.”