- After a year of price discipline, the second week of January promotions were growing from 2019 levels, according to Edited
- One of the reasons for the increase: inventory allocated for the holiday season arrived late
- Analysts say sales are likely to stay as demand for apparel is expected to slow
They are back.
After a year where US fashion retailers seemed to have finally abandoned their habit of relying on discounts to boost sales, shoppers are once again being greeted with 50% off posters in stores and a flood of promotions in their boxes. reception.
By some measures, sales are even bigger now than they were before the pandemic. In the second week of January, 44% of clothing products were on sale, down from 35% in the same period in 2019, according to retail intelligence firm Edited. Markdowns are also higher, with an average reduction of 41%, compared to 36% three years ago.
Experts give a few reasons for the sudden return to sales: Several retailers received late deliveries that missed the holiday season, which they must now dispose of in January, when consumers are less inclined to open their wallets. The Omicron variant may also have caused a decline in consumer spending.
Both of these factors are likely temporary, meaning January sales could be a blow to retailers who have adopted lighter merchandising strategies during the pandemic.
By the time we get rid of the surplus products from the fourth quarter and after the [Omicron] slowdown, well see a continuation of smarter markdowns, said Juliana Prather, chief marketing officer at Edited. Not a single brand or executive said they intend to promote more in 2022 than last year.
Others see the recent flurry of winter sales as the first step down the slippery slope to year-round discounts and desperate end-of-season promotions. These two tactics were the cornerstone of many US mass retailers’ strategy to compete with new digital competitors and fast fashion brands. These rivals are still a threat, and the reflex to use promotions to increase revenue still exists within many companies.
We see which brands have actually become healthier thanks to the pandemic and which have simply been riding the wave.
It won’t be an assault, but rather a gradual build-up, and as soon as consumers see the promotions, they’ll get picky, said Simeon Siegel, retail analyst at BMO Capital Markets. This is when we see which brands have actually gotten healthier thanks to the pandemic and which have simply been riding the wave.
Siegel notes in a recent report that Gap and Nordstrom are among retailers currently offering bigger year-over-year promotions, while Kate Spade, The RealReal, American Eagle Outfitters and Victorias Secrets Pink brand are putting fewer products. on sale.
The wave of apparel imports that has just hit US shores is complicating retailers’ pricing plans. Apparel imports rose 5% in September from the same period in 2019, 12% in October and 33% in November, according to Office of Textiles and Apparel data compiled by Morgan Stanley. Before the pandemic, the average increase in clothing imports was 1%.
This is concerning, in our view, as high inventory levels coupled with slightly slower demand compared to 2021 could trigger an increase in promotional levels, wrote Morgan Stanley analyst Kimberly Greenberger in a note published on January 18. . Greenberger downgraded Gap Inc. in its report. , citing specialty retail as particularly vulnerable to these trends.
Another wild card is inflation. Clothing costs rose 6% last year, according to the Consumer Price Index (CPI) released by the U.S. Bureau of Labor Statistics, slightly below the 7% average for all goods and services, the largest annual increase in 40 years. If prices continue to exceed what customers are used to paying, experts predict they may be less likely to spend as much in 2022 as they did in 2021.
Morgan Stanley has forecast that the Personal Consumption Expenditures Price Index, or PCE, a measure that measures the price of goods people pay, will likely slow in 2022. PCE growth will drop 12.2% from a year-on-year in 2021 to just north of 7% in 2022 and 5% in 2023, the bank said.
We were starting to see inflation bite and consumers were starting to react to it, said Neil Saunders, chief executive of GlobalData. Clothing is particularly negative because it is a discretionary category where people will cut back in tough times.
We were starting to see inflation bite and consumers were starting to react to that.
And as the economy continues to grow, there will be a shift in consumer spending from goods to services, such as entertainment and restaurants. Indeed, during the pandemic, spending has deviated considerably from the norm: spending on products has increased while spending on services has fallen.
But since 2021, when the world began to reopen after the pandemic, wallet shares began to revert to their pre-Covid relationship, with services share increasing, Greenberger wrote.
Greenberger pointed to the off-price sector as the potential winner in 2022, as stores like TJ Maxx will benefit from the global supply glut. She said she was most cautious of department stores and specialty mall retailers, which saw their margins decline year after year before the pandemic.
2021 has been the absolute best time for retail, Siegel said. We left all that greatness, and now when winners and losers emerge.
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