Intalytics Commentary: Tough Times for Apparel Retailers

Apparel retailers have been buffeted over the past year. Comp sales growth was nominal leading into the pandemic – clothing stores in the U.S. comped -0.5% in the twelve months leading up to the pandemic, while shoe stores only fared slightly better at +1.5%.

The steady growth of e-commerce was a principal cause – Amazon finally emerged as the largest seller of apparel in the U.S. in 2020, reaching a staggering $41 billion in sales. Then the pandemic hit – stores were ordered shut, consumers became leery of shopping, and working from home reduced the demand for business casual apparel.

Clothing and shoe stores each experienced a 33% drop in comp sales for the period from March 2020 through February 2021. Many large apparel chains, including Brooks Brothers, Lucky Brand, J. Crew, True Religion, Aldo, and Ascena, among others, filed for bankruptcy in 2020, with others following in 2021.

Now these stores are being hit with yet another body blow – the emerging strategy by apparel and shoe manufacturers to connect directly with their customers, either through e-commerce or their own stores. In the past two months, both Nike and Levi Strauss have announced plans to accelerate their direct-to-consumer (DTC) business. Nike had eliminated selected retail partners in August 2020, and announced they would be dropping seven more in March 2021, including powerhouses DSW and Macy’s (although they will continue to supply the Finish Line at Macy’s). Levi Strauss announced that they want to open 200 outlet stores and 40 conventional stores in the U.S., increasing their DTC sales from 40% of total revenue up to 60%.

The rise of DTC growth isn’t all bad for shopping center owners – replacing existing apparel tenants with DTC tenants will simply exchange one tenant for another. However, DTC will undoubtedly contribute to continued comp sales declines for existing apparel and shoe retailers, with more bankruptcies undoubtedly looming on the horizon.