Sector Spotlight: Dressing Up Makes Talbots, AnnTaylor Feel Better

Everyone out of khakis!

Their closets already stuffed to the bursting point with clothes for casual Friday, consumers finally seem to be in the mood to look more polished -- even downright natty -- this fall. No one's forecasting a return to the days of wearing three-piece suits five days a week, but there is a new focus on dressing up -- and that's helping the stocks of several retailers avoid the malaise that's hit the rest of the sector.

The Acme

"The casual trend has definitely peaked," says David Wolfe, creative director of the Doneger Group, a fashion merchandising and consulting firm in New York. "It's continuing, but it won't grow."

Shabby S&P Retail Index's poor year

"What I'm seeing now is that every market is morphing," says Wolfe. For women, he says, that means a resurgence in casual career separates as well as dressier outfits once thought unfit for the office. For men, "there's a big resurgence in trousers and dress pants, not just khakis or denim," he says. Wolfe says the suit business this fall is already heading upward, though probably just by a few percentage points.

"Oh, we're seeing it," says Candace Corlett, a partner with WSL Marketing. "The cutting edge is already dressing up more," she says, and the rest of the country is following. "People have so many casual pieces in their wardrobes, and we're seeing this switch back to dressing up because they're bored."

The Preppies

Who's that helping? Well, Talbots(TLB), for one. The preppy mecca reported an 18.5% increase in same-store sales for August, outpacing the mid-single-digit gain expected at best by analysts -- and that comes on top of last August's 18% gain. Talbots stock is up 72% in 2000, a year in which most retailing shares have lost ground because of worries about slower consumer spending and tough comparisons with 1999's strong sales growth.

Dressing Up Talbots (top) and AnnTaylor enjoy a resurgence

"We've started to see an increase in career sportswear on top of the increase in casual wear," says Margery Myers, Talbots spokeswoman. Now it's about a 50/50 split between the two segments -- a shift of "several percentage points," she says. Popular, somewhat dressier items include wrinkle-resistant cotton and washable wool (no dry-cleaning bills!).

AnnTaylor (ANN) has also perked up -- its stock is up 26% this year. An August sales increase of 3.7% (better than analysts had anticipated) was driven in part by sales of sweaters and suits, and analysts expect results to improve as the fall wears on.

Even Gap's (GPS) Old Navy division, which has lately been pegged as a teen specialty retailer, is trying to shake off a string of bad same-store sales reports with its new Old Navy Collection, billed as "workwear with flair." And Gap's Banana Republic unit has focused its marketing campaigns on office duds for the past few seasons.

Spinning Tops

Keep in mind that this doesn't necessarily mean a run on wingtips. Men's Wearhouse (MENS), which posted a 5.2% gain in same-store sales during August, said more casual duds -- not suits -- drove sales. Yet it's not activewear that's flying off the shelves, but dressier casual separates, says spokesman Neill Davis. "Growth is coming from tops, bottoms and sport coats," he says. (Men's Wearhouse stock has risen 13% in 2000.)

Well-Suited Men's Wearhouse up 13%

Not everyone is buying the idea that we're all majorly bored with khakis. "There may be a slight swing toward a little less of the casual look, but there's nothing at the moment that's a major trend," says Kurt Barnard, with Barnard's Retail Trend Report. He says casual dressing dovetails with another trend among consumers: spending less on clothes. "As people get older, they don't want something that changes fashion every month," Barnard says. "Casual attire meets their needs."

But even a little more dressing up should comfort the poor retail investors.

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