Traditional retailers are falling flat in the battle for apparel sales against e-commerce juggernaut Amazon.com Inc., as is evident in their recent earnings.
“In light of Amazon and Macy’s Inc.’s recent results, we feel more confident that Amazon will displace Macy’s as the number one U.S. apparel retailer by 2017,” Cowen & Co. wrote in a Wednesday note.
Macy’s Inc. M, -0.76% cut its outlook and reported a 6.1% drop in same-store sales on Wednesday. Kohl’s Corp. KSS, +0.05% fared little better Thursday, with profits and sales falling below estimates and same-store sales sliding 3.9%, well below the 0.2% gain estimated by FactSet.
Nordstrom Inc. JWN, -1.53% joined the fray after the bell, with a profit and sales miss that sent its shares down 16% in after-hours trade.
Amazon AMZN, +0.31% captured 41.2% of the e-commerce market share between January and April, according to Slice Intelligence. Next came Nordstrom, tied with Best Buy Co. Inc. BBY, +1.25% with 2.7%. Macy’s captured 1.5% of market share, to tie with Wal-Mart Stores Inc. WMT, -0.24%
“While we do not track apparel purchasers for Macy’s directly, we have seen a continued shift away from traditional retailers, including Wal-Mart and Target, which we do track,” Cowen wrote. In the first quarter of 2016, Amazon apparel purchasing was up 19% year over year, while it fell 1% at Wal-Mart and 5% at Target Corp. TGT, -1.28% according to a survey of 2,500 consumers that the investment bank conducted.
On Monday, Gap Inc. GPS, -1.93% announced April results that continued a streak of same-store sales declines and sales of $3.44 billion for the quarter, down from $3.66 billion last year. Fitch Ratings downgraded the company to “junk” status on Wednesday.
Traditional retailers that have built their business on physical locations now find themselves struggling to transform into retailers that sell across multiple platforms.
“Consumers visit stores less as they feel less urgency to visit the mall and instead shop and buy online,” analysts at Stifel wrote in a note published Monday. “However, they are not buying enough to offset the falling store sales. We are convinced that stores remain an important component of apparel retailing but recognize that an equilibrium must be found between stores and online.”
But the problem isn’t just that spending is shifting online. Consumer shopping habits and preferences are also shifting. The government retail report, due out Friday, has become an indicator of personal consumption. Not only does consumption shift with the state of the economy, it’s moving from “stuff” to services and experiences.
That said, clearly people are buying apparel, and Amazon is selling a lot of it.
“It’s harder and harder to reach customers and get them in the store, then to convert them and keep them,” said Jared Wiesel, a partner at pricing and revenue management consulting firm Revenue Analytics. “It’s not that there’s no one growing. Amazon seems to have no problem achieving growth.”
Some say there’s a lack of freshness and “newness” in the current fashion trends, coupled with a “casualization” of the universal dress code due to the dominant style trend: athleisure.
“Maybe the next thing that people will talk about and find intriguing, if athleisure hangs on, is clothing embedded with sensors,” said Ken Murphy, senior vice president and portfolio manager at Standard Life Investments, an asset management services company.
Indeed, Fossil Group Inc. FOSL, -4.98% is expecting wearables to be key to its turnaround.
“We continue to expect 2016 to be a year where we can see our momentum improve as we deliver our wearables product across our portfolio of brands,” said Fossil Chief Executive Kosta Kartsotis on Tuesday’s earnings call.
Other small retailers see an opportunity in Amazon’s dominance.
American Giant is an athleisure retailer and manufacturer that sells what some have called “the greatest hoodie ever made.” Bayard Winthrop, chief executive of American Giant, believes a focus on quality and design, and a sharing of values between customers and retailers is the key to success in the apparel market, rather than the big-budget marketing and expansive geographic footprint of traditional retailers.
His company’s goods are sold only on the American Giant website.
“If I do my job well and build relationships over time, I can thrive,” said Winthrop. “There’s a profound change happening in retail, a reshuffling of the industry.”