Supply Chain Insights - Apparel Shines for the Holidays

Mixed messages about the nation's economic health and tightened household budgets have kept consumers cautious for most of 2010. Consumers have pegged their confidence in the economy to the labor market, which has shown few signs of improvement. Measures of consumer confidence continue to hold to levels nearly half of what they were prior to the recession; overall consumer spending in 2010 has been conservative and savings rates have risen.

Consumer apparel spending, however, looks more positive for this holiday season. Consumers have shown a return to purchasing apparel in 2010, with eight consecutive months of year-over-year increases in spending (BEA). These increases, along with back-to-school apparel sales that exceeded expectations, give some foundation for hopes of stronger holiday apparel sales than in recent years. After two years of holding back on clothing purchases, consumers seem ready to open their holiday wallets and even their credit cards to buy for others and for themselves. For those that have been denying themselves apparel over the last couple years, apparel will most likely figure prominently in holiday purchases.

HOLIDAY GIFTING

According to Cotton Incorporated's Lifestyle Monitor� survey, consumers are showing that they may be a little more flexible with where and how they make their holiday purchases this year. The percentage of consumers who said they plan to buy more gifts at mass merchants fell this year to 60% from 70% in 2009. Since consumers remain price sensitive, this change could indicate they are willing to put in the extra effort to find discounts, wherever they may be.

Retailers should also get a boost this year from two modest but important trends: increases in the number of consumers who plan to buy something for themselves during their holiday shopping and in the number of consumers planning to use their credit cards. Following months of disciplined shopping, consumers may feel like they have (or just need) some extra room in their holiday budget. Last year cash and debit were the preferred payment methods for holiday gifts, but this year credit cards are making a comeback. The majority of consumers (54%) plan to purchase holiday gifts on credit cards, compared to only 48% in 2009. Retailers offering discounts tied to store credit cards may see the biggest boost, since these often increase the average number of items purchased and lead to multiple purchases.

WHAT CONSUMERS ARE BUYING

According to the Lifestyle Monitor data, gift cards continue to be the favorite gift to purchase and receive. Seventy percent of consumers say they are planning to purchase gift cards this year, up from 62% in 2009. Most consumers (67%) also say they'd rather receive a gift card than an actual gift, up from 62% in 2009.

Clothing is number two on consumers' holiday shopping lists, up from number four in 2009, probably due in large part to the self-restraint consumers have shown in apparel purchasing during the year. Of the 67% of consumers who say they have cut back on purchases due to their financial situation, 33% have held back on purchasing clothing. Add to this that 66% of consumers say they like receiving clothing as a holiday gift, and it is clear that clothing will be a practical gift from both the need and want perspectives. Clothing is also an affordable category at many spending levels and one that is discounted heavily during the holiday season, making this increased intent to purchase a positive sign for apparel retailers. Among those planning to purchase clothing this holiday season, their preferences are for cotton favorites like T-shirts (52%), sleepwear (44%), sweaters (44%), and jeans (35%). Clothing retailers should also see a boost in post-holiday clothing sales from gift card holders; more than half (54%) of consumers are planning to purchase gift cards for clothing stores, up from 46% in 2009. Among consumers planning to purchase gift cards, those most likely to say they would buy gift cards for clothing stores were consumers with children (57%, vs. 43% for households without children) and women (58%, vs. 44% for men).

HOLIDAY'S CYBER-SHOPPERS

While the majority of consumers still prefer the store environment to the Internet for purchasing gifts (69% versus 31%), the number of consumers who say they purchase gifts online has steadily increased since the 1990s. Almost half of consumers surveyed in this year's Lifestyle Monitor say they plan to purchase holiday gifts online, and these online shoppers are significantly more likely to start their holiday shopping between January and October than in-store devotees. Online shopping provides opportunities for consumers to stretch their dollar through easier comparison shopping and greater access to promotions and deals. On average, the top reasons consumers say they shop online for gifts is convenience (65%), followed by free shipping or other promotion deals (47%), and comparison shopping (39%). Preferences vary somewhat by age. Consumers ages 13-34 are significantly more likely than consumers ages 35 and up to say that they shop online for holiday gifts because they can find a better selection of merchandise online

WRAPPING UP

Holiday 2010 consumers will show more flexibility in their holiday shopping than last year's, but planning, price, and apparel will remain important. The majority of consumers (73%) say that they will plan the holiday gifts they are going to buy before they go shopping. This has been a year-round trend in response to economic uncertainties, which have also made practical gifts like apparel a high priority for gift-givers looking to meet the needs of their friends and family. Another year-round trend that will continue into the holiday season is waiting for discounts - 66% of consumers say they wait for clothing to go on sale before they buy. To get the most value for their money, this year's holiday shoppers will be relying on comparison shopping to locate the best discounts and their credit cards to add flexibility to their budgets.