Consumers refresh their closets, leading apparel sales to rise

The news: Consumers in Q1 began ditching the sweatpants they’ve worn throughout the pandemic and refreshed their wardrobes as they returned to in-person occasions such as social events, travel, and the office. That drove strong sales at a number of retailers that primarily sell apparel across several different price points.

• Nordstrom’s fiscal Q1 sales grew 18.7% year-over-year (YoY), including 23.5% YoY at its luxury department store.
• Urban Outfitters’ sales rose 13.4% YoY, including 18.7% YoY at Anthropologie.
• Express’ sales jumped 30.0% YoY.
• Ralph Lauren’s sales rose 18.3% YoY.

A shift in spending: US households allocated more of their spending to physical goods throughout the pandemic than before both because of demand for goods such as work-from-home furniture and because the cost of goods has risen faster than inflation.

• For example, spending on goods accounted for 35% of household spending in Q1, up from 31% in Q4 2019.
• However, there are signs of a shift in spending patterns as people return to in-person activities such as dining out. Spending on food services and drinking places rose 25.4% YoY in the first four months of the year, per the US Commerce Department.
• That strong growth dovetailed with 14.9% growth at apparel and accessories retailers.
• There’s also been a shift in how people shop, as the growth rate for brick-and-mortar retail has outpaced ecommerce’s rate for four straight quarters.

A return to normal: “[Our] customers are excited for a return to normal,” said Richard Hayne, Urban Outfitters CEO, during the retailer’s earnings call. “They’re shopping in stores again and are out and about with family and friends, traveling, dining-out, and going to many, many events. Customers are shopping to accommodate their social calendars and the products they’re choosing are those tailored specifically for going-out moments.”

It isn’t good news all-around: While many apparel retailers have benefited from the shifting behavioral patterns, there are also several merchants that have struggled with myriad challenges such as supply chain disruptions and rising inflation.

• Abercrombie & Fitch pointed to rising freight and product costs weighing on its sales and leading to an unexpected loss.
• Carter’s sales fell 0.8% due in part to challenging YoY comps as shoppers in Q1 2021 were shopping for Easter and flush with stimulus checks.

The big takeaway: While Q1 was generally good for apparel retailers, there are signs that inflation is taking a toll on shoppers.

• More than eight in 10 U.S consumers are planning to make changes to mitigate their product spending in the next three to six months, per The NPD Group.
• Moreover, consumers bought 6% fewer items at retail than they did in the first quarter of 2021.
• Apparel retailers face a difficult inventory management challenge as they adjust to the rapid shifts in consumer behavior, particularly amid an environment with ongoing supply chain challenges.