Updated from Monday, April 13
If retailers are looking to boost sales as most of the country transitions from spring to summer, they might want to ask themselves one critical question: Will the average consumer really spend $125 on
Lots of hype surrounded retailers' sharp discounts on apparel and shoes at the start of the year. However, in some stores, those discounts have largely fizzled out on new merchandise that consumers are actually interested in buying.
The scenario sets up a very competitive retail landscape in which stores will have to have the right merchandise, at the right price, marketed the right way to woo thrifty shoppers.
"After an extremely promotional holiday where 75%+
discounting was the norm, customers are being selective with what they buy," Oppenheimer analysts noted in a report last month.
Glimmers of hope for the consumer-driven U.S. economy were dashed on Tuesday with the Commerce Department's report of a 1.1% slide in March retail sales. The drop was much worse than the 0.3% increase that analysts had expected. An international trade group estimated last week that retail sales fell a more precipitous 2.1% in the U.S. last month -- signals that companies who rely on consumers for profits are not out of the woods yet.
The news was especially disappointing for investors who saw better-than-expected results in the first two months of the year, leading to a 27% surge in apparel retailer stocks so far this year, according to Dow Jones Indexes.
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January sales were boosted by door-buster events for winter apparel, but by February, sales had tapered off quite a bit. Last month showed declines across nearly all categories -- with specialty apparel stores showing an especially sharp 1.8% drop.
Spot checks at stories throughout the month showed retailers using a wide range of strategies to secure the consumer dollar, with some going a bit overboard with bargain-basement signage and displays while others quietly disperse discount racks within the regular-priced apparel. But it seems to be clear that most shoppers are willing to take the quality or style down a few notches to secure the best deal.
For instance, despite "a bit of a bargain-basement feel," Stephens analysts found AnnTaylor LOFT to be one of the busiest stores at a mall in Paramus, N.J. during a recent visit. "The value message seemed to be resonating with the customers," they wrote.
Anuja Pimplé, a 26-year-old designer who works in the textile industry, is one such customer.
While she's still employed, Pimplé's job outlook at a small company with declining business is shaky and she maintains a strict budget. Pimplé still clips coupons and is on the look-out for deals, but hasn't made any discretionary fashion purchases in the past three months because the value proposition hasn't yet reached critical mass.
"Usually if it's 'in' it's expensive," says Pimplé, who has been "just saving up money and trying to plan one of those 'special shopping days.'"
Still, the story is not as simple as which store advertises the best deal. Window dressing must be followed up with bargains on the stuff people actually want to buy -- or else foot traffic won't translate into lines at the register. If discounts apply to last season's merchandise and ho-hum apparel -- or simply aren't steep enough -- shoppers aren't taking the bait.
For instance, Pimplé characterizes Old Navy, H&M, Forever 21 and Strawberry as her "go-to places" for three key reasons.
"They're inexpensive, made mostly with good materials, and have everything from the basics to a few key trendy pieces," Pimplé says. "I love mixing and matching my outfits, and these are the stores to do exactly that."
Retailers that are slacking on discounts, or not discounting sharply enough, will also have trouble racking up sales.
The Oppenheimer note indicates that one
Abercrombie & Fitch
in Milford, Conn., may have waited too long to discount early spring goods: "Current markdown merchandise has not sold in weeks," analyst Robert Samuels says. "The women's and men's full-price merchandise was untouched and is not selling."
in New Jersey, Samuels noticed a twofer sale on men's polos that offered just a $9 discount for a $59 purchase.
"A few customers commented how this wasn't 'much of a sale' and was somewhat confusing," he wrote.
There are indications that stores like Abercrombie,
, Anthropologie and
are holding tight to relatively high initial price points. That creates an opportunity for competitors like
that have less cache for some shoppers, but are promoting big discounts more heavily.
For instance, Abercrombie's new line of men's denim ranges from $79.50 to $198, while Aeropostale is offering all men's denim at $19.50 -- with a free bag for customers that spend over $50. Anthropologie is kicking off the season with fashion tops at prices under $90, some run as high as $215. The same type of blouses can be found at the ubiquitous Forever21 for under $20.
Besides price point, some retailers are dealing with an identity crisis.
unveiled some new fashion this season, changing up its style as it grapples with full-service competitors like H&M and Forever21, which offer an array of vastly different styles with quick turnover at a much lower price point.
Bebe may be best known for monotone t-shirts -- usually in white or black -- which feature a simple studded "bebe" logo. The season's new apparel ranged from Cheetah-print pants and rhinestone jeans to floral party prints, a fringe-halter dress and linen bottoms. Perhaps each style would draw in a certain consumer, but the overhaul might leave existing shoppers whiplashed and new ones confused about just exactly what kind of style the chain represents.
"While we like that more variety is offered, we think the collection is a little all over the place," writes Stephens analyst Ann Poole. "We aren't sold on the product yet," she adds, but noted that there was still a "positive response to the fashion tees."
Others simply aren't offering things people want to buy today, bringing up the question of whether specialty retailers like
( HOTT) and Spencer's can weather the economic storm no matter how much they mark down oddball items.
It will be interesting to see whether top-line growth will hurt bottom-line margins for aggressive discounters. But in an environment where
has become the quintessential tale of a full-service cheapo store stealing business from rivals -- whether a direct competitor like
, department stores like
, or local supermarkets like
-- it seems as though margins mean less if no one is buying the goods.
However, opportunities certainly exist for retailers that cut costs, slashed prices and prepared inventory for a new economy that is driven by a more frugal consumer.
Erin Serrano, a public-relations executive who lives and shops in New York City, is the classic example of a consumer who is fashion conscious and willing to spend, but acutely aware of the uncertain economic outlook. She's paying down debt, but still buying new, trendy clothes -- if they're on sale.
Serrano recently passed by a DKNY store with a sign advertising up to 80% off -- " I couldn't pass it up," she says -- and ended up buying a $150 silk top for just $30. She also went on "a great shopping spree" at Barami.
"Yes I spent almost $200," Serrano admits in an email message, "but I got about $500 worth of clothes!"
Still, in light of the economic upheaval and her debt load, Serrano has taken it down a few notches. She has an eye for Gucci and Prada styles, and likes to window-shop at Bloomingdales, but opts for similar, cheaper items at stores like H&M, Zara and DSW. In the event that she does buy something with a high-end label, she uses coupons, looks for promotions and scouts sample sales.
"I am an admitted shopaholic!" she says. "But lately, I've really had to curb my spending."