Despite the increasing drum roll surrounding the impending “Retail Apocalypse,” in the words of Mark Twain, “The reports of my death are greatly exaggerated.” So be it with retailers and retail stocks!
At a recent Retail Marketing Society meeting, analysts shared their views about a variety of pertinent topics. Participating panelists were Ike Boruchow of Wells Fargo Securities, Roxanne Meyer of MKM Partners, Paul Trussell of Deutsche Bank and Edward Yruma of KeyBanc Capital Markets. The moderator was Lizabeth Dunn of Consumer Growth Partners.
The consumer appears to be in good shape with rising wages and record low unemployment. Do you see any worrying trends that point to a slowdown?
Yruma: At the very high end, it’s been a volatile equity market. Conversely, on the low and middle income, it’s been nothing but strength. Here, it’s a question of whether the consumer is really interested in apparel. Are they more interested in buying a new iPhone? Are they interested by home furnishings? It’s more a decision of on what they are buying, rather than whether they are buying, which is a bit of a different dynamic than what we see on the high end.
Trussell: There has been some softening across a number of manufacturing data points, and actually, manufacturing can act as a lead indicator for spending broadly. So, no red flags, but certainly there are some yellow flags as we look out towards the middle of 2020, just given what we’ve seen of late. Retail sales year-over-year are growing at a 3% clip; there are implications that retail sales could slow to more like one and a half to two percent.
Meyer: For the ladies’ apparel segment, a portion of it is due to some fashion transition and retailers perhaps not being savvy in terms of capturing a transition and trend that’s out there. We’re starting to see that level out a bit. In general, we’ve seen remarkable strength in the value segment. When we look at the second quarter value from off priced to Target to Walmart, the numbers are extraordinary. So the question is: is that a reflection of the consumer being robust, or is it that you’re already seeing some early signs of some of the higher-end consumers actually trading down? To me, it’s not clear, but I don’t see any real cracks. The cracks that I continue to witness are more structural — maybe a prolonged weakness in the department store segment and in the wholesale segment and maybe other pockets of strength, whether it’s online or off-price doing a little bit better. It’s more about potential pockets and where the consumer is buying and not necessarily broad consumer slow down.
Your thoughts on the rental model and the wire brands like Urban Outfitters jumping into rental fashion?
Yruma: There’s been a behavioral change in millennials and younger, and they’re open to things like rental. Some of it may be an antidote to what we’ve seen, and that’s a deterioration in fast fashion, right? Consumers want a piece of their wardrobe to be new, to be fresh. They want something that they can wear on Friday night that they’ll never have to wear again. Heretofore, it was going to Forever 21, buying it and then throwing it away. Now there is an environmental responsibility, and that’s not a good way to buy apparel. Rental seems to be filling some of that gap. Originally, rental was myopically focused on very special occasion wear, particularly dresses. Now there’s an openness to renting everyday clothing, clothing you wear on a more regular basis. Now that they’ve demonstrated that they can cycle through apparel effectively and become part of someone’s more permanent wardrobe, our sense is that it’ll continue to take share. The economics are still somewhat questionable, so that’s the piece that we’re watching closely, but certainly we think that it’s replacing or displacing a lot of fast fashion.
Burochow: Sustainability, a buzz word several years ago, is now a legitimate thing when we do our survey work with the female consumer. When she talks about why she’ll shop a brand or buy on a certain website, that is top of mind. The fast fashion model, which used to drive consumption, is the exact opposite of that. Then, think about it from an economic standpoint. Rent the Runway is the best example of this. If you do their unlimited service, you spend $1,900 a year on apparel and get as many choices, as many brands as you want. It makes even more economic sense when you realize that the average woman spends $3,000 on apparel a year and $500 to $700 on dry cleaning. The mental hurdle of whether it’s renting used clothes from Rent the Runway, buying used clothes from Thredup or buying a used handbag from the RealReal is that someone else has worn or used the item. But we’re jumping over it right now. I think this category is set to grow 30% to 40% for a long time.
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