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Department Stores Give Specialty Stores a Run for Their Gains

Consumers are turning to midpriced department stores, which generally offer cheaper fashions than specialty clothing chains. For the second month in a row, sales at department stores chain of the likes of Kohl’s and JCPenney have outperformed those of speciality apparel chains of Gap and Abercrombie & Fitch. Specialty apparel stores sales rose by a meagre 0.6 % in June 2006 whereas department stores sales climbed up by 3.8 % according to research analysts at International Council of Shopping Centres and Retail Metrics.

The unexpected shift in consumer behaviour, which earlier moved towards specialty stores in the last two years can be due to many reasons, including the slow economy and hike in gasoline price that has driven shoppers to lower-priced department stores. CFO Wal-Mart, Thomas M Schoewe observed the rise in the number of customers who shopped in June, demonstrating how gasoline prices are shaping their buying patterns, as sales at Wal-Mart’s discount chain increased by 1.2 % which is, however, less than expected. It also brings onto the surface the rationale building up amongst the consumers for “value for money”.

Department stores have always been the traditional favourite for shopping as they appeal to customers because of their ability to meet the needs for the entire family under one roof. Another reason to shop at a department store is because large stores can afford to research and determine the popular opinion, thus making it more likely for consumers to find something they need or like in a department store. On the other hand, speciality stores reflect a certain signature style endorsed by a section of shoppers; one of the reason for the rising popularity of specialty stores in the past.

However, in the last two years, a lot of reshuffling has brought the focus back to department stores. Among the foremost reasons besides economics are: closing of malls, consolidation of department stores, upscaling of products at department stores and cutthroat competition amongst the speciality stores.

It cannot be denied that consolidations and mergers have assisted Department Stores to a very large extent in expanding their reach. The merger of the May and Federated Department Stores chains last year and the closure of some of May's mall stores has made way for Macy's and has left thousands of May’s loyals up for grabs by department stores. Analysts at Stifel Nicolaus have conjectured that these alienated consumers will go shopping, if it is at the mall, to JCPenney and when it's outside the mall, it's Kohl's. Stifel Nicolaus is a full-service brokerage and banking firm that also provides market insights to its clients. The revival of the department store has served as a bright spot in the retail sales for June this year as sales at ‘stores open for at least a year’ rose 2.8 % last month compared with June 2005, according to Retail Metrics, a research firm. Upscale department stores also fared well. Saks Fifth Avenue that tried to win over consumers with updates of classic looks instead of being trendy, saw sales rise 5.3 % in June from a year earlier, well above expectations again. The discount chain Target had its sales up 4.8 % in June, primarily because of better product range to serve the higher-income consumers.

Chico's and the Limited were few others in the specialty store segment who missed their sales forecasts for the month, and so did Abercrombie & Fitch, which had been selling hot cakes for the entire period last year. The management of the company that mainly sells apparel to teenagers and young adults, and also operates the Hollister and Ruehl chains, stated that its sales were down by 4 % in June, compared with the figures for that month a year earlier. The company's namesake stores, known for dim lighting, wood panelling and posters of semi-naked male models fared the worst, with sales down 10 % from a year earlier, especially for men's swimwear and women's denim.

The other reason for Abercrombie’s slow sales was the stiff competition it faced from American Eagle Outfitters, as the two specialty stores targeting the same audience, aggressively pushed the expansion of its tight-fitting knit clothing, which has always been a popular category with the tween set. At Gap, sales fell across all three divisions, including Old Navy and Banana Republic brands. Sales at Gap itself that is testing a back-to-basics approach favoring T-shirts and jeans over designer-inspired handbags and dresses, fell 4 % from last year. Tara Carter, an analyst at the research firm Jennifer Black & Associates, which is often highly critical of Gap, wrote that "although Gap's June performance was not impressive, we have viewed pieces of all three division's up-and-coming fall lines, which has caused us to warm up" to the company.

As speciality stores continued to suffer, department stores like JCPenney (4.3 %) and Kohl's (7.1 %) posted big gains followed by Federated that owns Macy's and Bloomingdale's with sales up by 1.7 % and Wal-Mart up 1.29 %. JCPenney saw customer traffic going up at many of its mall stores, citing among other things, the mergers of rival department stores.

This shift in the buying trends on the part of the consumers is assumed to be temporary by many research analysts like Lehman Bros’ Bob Drbul, as specialty stores are gearing themselves up with various strategies to attract back the consumers. The specialty stores are very likely to stage a comeback, as the consumers on the lookout for the distinguishing style in their apparel would soon get over the changes in the prices of commodities and services that has led them to shop from the department stores.

Partha Anant

Client: Apparel Online

posted by Partha Anant @ 6:09 AM