The reason for this pressure, as per Cowen are three visible trends: Amazon will be the largest US apparel retailer by 2017 with its apparel business expected to grow to $52 billion in gross margin volume by 2020, a boon for strong brands but a bad news for traditional retail; major off-price retailers will open at least 2,500 stores in the US by 2020, while major retailers will expand by roughly 875; and spending on fitness-related wearable products will pull see a shift in spending from traditional retail as consumers are expected to spend $15.8 billion on the category by 2020.
Athleisure has taken the centre-stage as fitness conscious consumers are ready to spend on fitness wearables such as athletic apparel and footwear to match. “Price perception data for Nike and Under Armour from the Cowen Consumer Tracker Survey updated through July, further indicates the consumer’s willingness to pay for innovation, performance and newness,” the report says. Price satisfaction scores for Nike and Under Armour are up an average 3 percent over the last year.
Amazon’s apparel strength to impact brick-and-mortar
Though the macroeconomic trends are looking more positive, Cowen said each of the disruptive trends, plus the pervasiveness of high-turn, low cost fast fashion is “impacting apparel business models through a combination of deflationary pricing pressure and increased speed to market and end user which may impact future revenue growth and operating margin expansion.”
Amazon’s projected growth in apparels is expected to grab the market share from traditional brick-and-mortar retailers, and brands will have to closely monitor their relationship with the e-commerce giant. “Global brands that can effectively segment product between their own stores/website, the traditional wholesale partners and Amazon have an opportunity to expand distribution,” the report noted. Some brands, for instance, like Nike, Under Armour, VF Corporation and the North Face, may limit the products they sell through Amazon. “We think that the goods sold on Amazon will be more commoditized products, popular items that consumers can purchase from multiple companies stores and/or websites,” the report noted.
And as for exclusive products, like the current season’s clothing collection or a signature shoe release, will still be done on the brand’s own website so they can control the product display and requisite marketing.
Off-price retailers on the rise, fast fashion wins
The report suggests when it comes to the off-price disruptors, the discount category is experiencing “tremendous” growth in revenue and store expansion and that growth is only expected to continue. Macy’s and Kohl’s too recently entered the off-price race, joining other department stores like Nordstrom and Saks, and the sector’s rise will put added pressure on apparel pricing as the lower-cost formats fight the full-price stores for share of consumer apparel spending.
And fast fashion on the other hand has been the driving force behind the new way of retail and the quick-to-market strategy is helping brands such as Zara, H&M, Uniqlo, Primark and Forever 21 to steal the share held by apparel retailers. All these five fast fashion retailers brought in a combined $68 billion in global sales last year, or 6 per cent of the global apparel market, the report added.
Fast fashion, off-price and Amazon combined, with their promotional or discounted prices, according to Cowen, will “chip away at traditional methods of apparel distribution and exert deflationary pressure on average unit retail as all concepts compete for share of customers’ wallets.”
www.owenandco.com
