With gloomy consumer sentiment surveys reflecting dysfunction in both Wall Street and Washington, stagnant GDP growth, stubborn 9% unemployment and the ongoing housing slump, most experts are calling for a conservative holiday season.
But the American shopper? She begs to differ, at least when it comes to apparel, for herself and her family. Certainly, clothing was run through the wringer in the recession, as demand plunged 8% from its peak annual levels of 2007, bottoming in 2009. This year, apparel is suffering the further indignity of seeing the first cost inflation in decades, as cotton prices peaked at record levels in March.
Although apparel bounced off the bottom in 2010 with a 4% year-over-year rebound, sales still lagged pre-recession levels. But for the first nine months of 2011, apparel sales were up almost 6% over 2010, with little if any let-up during back-to-school. Although historically back-to-school is an imperfect predictor of holiday sales, full-year apparel sales in 2011 will, at the current pace, finally breach the sales levels achieved four years ago.
So despite the dour consensus outlook, apparel is on track for its best Christmas since 2006, if not ever. Five factors are driving apparel’s comeback:
• Pent-up demand
After four years of outfitting her kids but scrimping on herself, women are finally freshening their wardrobes — since you can accessorize that schmatta just so many times. Men, notorious for making that suit or sport coat last one more year, are returning to the haberdashery, with men’s clothing sales up about 9% year-over-year.
• Muted price elasticity
Although many retailers are now passing through most — but not all — of the cost increases, evidence to date shows little demand destruction. By Customer Growth Partners’ estimates, apparel price elasticity ranges from 0.6 to 0.8, indicating that average price increases of 10% will reduce demand by only 7%, netting a 3% revenue boost.
• Discretionary spending rotation
Through 2007, the twin drivers of discretionary retail spending were home improvement projects and consumer