In a market where customers dictate how they want to shop, can fashion retail as we’ve known it continue to survive?
No one inside the fashion retail business has been under any assumption that anything is going well. In fact, I’m struggling to remember the last time fashion retail markets overall actually had a good year; 2009-10, maybe? With shopping habits changing dramatically, retailers have been struggling to keep up with new habits and attitudes and increasingly we’ve been seeing a number of stores completely close.
The troubles with Sears and JC Penney are well-known and have been an ongoing symbol of just how severely the status of the once-revered department store has declined. But when Macy’s announced earlier this week that they are closing 40 stores by Spring, it was a clarion call for retailers as to just how serious the market decline has become. Then, as if to underscore how serious the problem is, Macy’s announced late Wednesday night that it is looking to sell stakes in its well-known flagship stores, including the tourist attraction on West 34th street in Manhattan.
Of course, Macy’s isn’t the only one suffering. Consider the list of announcements made just this week:
- Sales at Gap and Urban Outfitter dropped two percent for November and December. So much for a holiday bump.
- Uniqlo, which is trying to take over the world, saw its international profits fall 14.2 percent.
- Nieman-Marcus canceled plans for an IPO and lost over ten million dollars between August and October
- Nordstrom stock declined 37.3 percent and Kohl’s stock fell 22 percent during 2015.
As my late mother would have said, “What the Sam Hill is going on?” [No, I’ve no idea who Sam Hill was.]
Naturally, analysts have filled pages with charts and graphs attempting to explain the decline, but essentially it comes down to two things: warm weather and the Internet.
Want to buy a new coat? Now that the weather is finally turning colder, there are bargains to be found on winter wear most everywhere one looks because none of it sold during November and December. With temperatures across North America significantly warmer than usual, often over 70 degrees in a lot of typically snow-bound places, no one had any need for heavy coats, thermal leggings, or even designer gloves.
Just how bad did the warm weather affect fashion retail markets? Estimates are somewhere around $572 million in losses from November 1 to December 31. That’s enough to send a shiver down the spine of most any department store manager. As a result, one can now look around and find all that great winter merchandise at severe discounts, sometimes as much as 60 to 70 percent off. Spring looks are being boxed for shipping right now and fashion retailers need to get rid of all this cold weather merchandise ASAP, profits be damned.
More than just weather, though, department stores and fashion retailers continue to struggle to grasp the ever-changing shopping habits of the American consumer. In its closing of 40 stores, Macy’s underscores one of the most significant changes to happen in retail in the past 30 years: the decline of the shopping mall. Sure, it was a great place to hang out when you were a kid, back before there was a thing such as an Internet. Malls with four major anchor stores seemed like a good idea at the time. Now, though, no one really has the time, nor the desire, to wander through a large store such as Macy’s or Norstrom when we’d really rather just buy a lot of the same goods online. As e-commerce has become more convenient and cost-effective, we’re just not as interested in driving all the way across town and spending four hours milling aimlessly through the mall, hoping to find something that amuses us.
While there are still a significant number of people who buy their clothes in stores, we’re much more likely to go to a dedicated retailer, such as H&M or Windsor, where what we want is right there, easy to find, and incredibly affordable. American shoppers have grown even more price-conscious than they were before the 2008 recession, so discounters, fast fashion retail, and outlet stores have seen sales increase while traditional mall anchors are practically ghost towns, especially this time of year when there’s really not a lot of motivation to get out and shop.
On top of this, a number of fashion retailers are struggling to repay debt they’ve acquired over the years, some through restructuring and others through acquisition. Bloomberg is predicting a higher rate of default this coming year and nearly all of the brands it considers to be in the greatest danger are fashion retailers: 9 West, J. Crew, Bon-Ton, Claire’s, and Men’s Warehouse. With bond prices at frighteningly low rates, we won’t be the least bit surprised should some of these brands be forced to close by years’ end.
Short term, this is good news for consumers as sales prices plummet in an attempt to gain even the smallest margin of profit from existing stockpiles. However, the long-term outlook isn’t so rosy as fewer competitors in the market inevitably allows prices to go up, even as manufacturing costs stay flat.
Fashion retailers have to work hard to keep their heads above water even in the best of markets. In the current climate, more than a few are starting to hand out life preservers to their employees. Macy’s 40 stores may just be the tip of the proverbial iceberg.
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