Clothing retailers struggle to adapt to changing preferences

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It was a mixed bag for apparel companies in the first quarter as these retailers navigated inventory headwinds and changing style preferences.

Companies like Poshmark, Revolve and TJX Companies posted earnings that beat expectations with revenue up 13% to 43%. However, department store stalwart Kohl’s saw revenue drop from $3.8 billion to $3.7 billion year-over-year, and big-box retailers like Target and Walmart were forced to reduce clothing after incorrectly predicting demand.

Apparel retailers face many headwinds that promise to further dampen their bottom line, including continued supply chain pressures and inflation. Additionally, clothing preferences are rapidly shifting from home basics to work and party wear. To see the trends driving apparel sales and the headwinds facing apparel retailers, Modern Retail rounded up recent commentary on apparel retailers’ first-quarter earnings.

Evening wear is trendy

In the first quarter, shoppers were spending on outerwear for both back-to-office and back-to-events.

Kohl’s, Revolve and ThreadUp all saw strong dress growth, with the category seeing 150% year-over-year growth at Revolve. “Our client is out again, living a very active social lifestyle,” Revolve Chief Financial Officer Jesse Timmermans said in the retailer’s first quarter results earlier this month.

At Poshmark, meanwhile, prom was up 75% and bridal wear was up 39%. “[It’s] real significant growth in event-driven shopping,” Poshmark CFO Rodrigo Brumana said during the retailer’s earnings call last week.

And events also spark interest in accessories. ThredUp also reported over 50% growth in high heels. Etsy executives said jewelry and accessories were the best performing categories.

“Special occasions… are one of the few areas of apparel that has actually remained strong,” Gabriella Santaniello, founder of retail consultancy firm A Line Partners, told Modern Retail.

Pandemic attrition is over

While sportswear, leisurewear and loungewear were all pandemic behemoths, growth is slowing for some retailers.

At Kohl’s, the asset only performed in line with the business, while dresses and denim outperformed. At Target, basic clothing fell in sales while trendier clothing rose.

“While staple clothing moderated in the quarter, trend-based clothing accelerated significantly as more people returned to the office or dined out with friends,” Christina said. Hennington, Target’s vice president and chief growth officer, during the big-box retailer’s results on Wednesday.

Some sports-focused retailers also struggled in the quarter. Under Armour, for example, missed estimates as its gross margin declined and sales remained relatively flat year-over-year. Foot Locker’s revenue underperformed estimates as same-store sales fell.

“I just think after two and a half years of feeling like they’re lounging, people feel the need to dress up,” Santaniello said. “Athleta is struggling, Aerie is struggling, we see it in all areas where it’s just lower sales and not as much demand.”

Indeed, as the space becomes increasingly crowded and consumers shift their spending towards event apparel, comfort-focused brands will need to exercise more caution in 2022 to drive incremental sales.

Sports brands and retailers need to keep up and evolve,” Jessica Ramirez, senior research analyst at Jane Hali and Associates, told Modern Retail. “You could have a sports jacket that could be quite stylish but with smart, athletic fabric or draw from other categories. What silhouettes do they offer the consumer that could be useful right now?”

Forecast failures

Citing changing consumer preferences, supply chain issues and a colder-than-normal spring, retailers like Walmart, Target and JD all slashed apparel this quarter.

“We started to be aggressive with pullbacks in apparel, for example, in the first quarter,” Walmart CEO and Chairman Doug McMillon said in the retailer’s earnings statement on Tuesday. “The category mix in the US was heaviest in food and consumables and spending shifted somewhat away from more discretionary items, including categories affected by unusually cool weather like clothing.”

The shift from informal to formal wear has also happened faster than Target executives expected. When consumers spent on discretionary items, Target CEO Brian Cornell explained, they focused that spending on experiential items like vacation dresses or travel accessories.

Supply chain issues, from continually rising transportation costs to rising fuel costs amid inflation, have made it harder for retailers to get the product they want at the when they want it at a reasonable price.

“We expect this year to be unpredictable for us,” Etsy CEO Joshua Silverman said in the retailer’s results earlier this month, which posted consolidated revenue growth of 5.2. %. “There are certainly many moving parts both tailwinds and headwinds, which are difficult to predict…we will have to fight harder for consumers’ time and money.”

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