Supply Chain Insights: Holiday 2009: The Outlook for Apparel

As the U.S. economy looks towards recovery, consumers continue to feel the effects of the recession, job losses, and last year’s decline in net worth. According to Cotton Incorporated’s Lifestyle Monitor™ survey, 83% of U.S. consumers are “very” or “somewhat” concerned about a future reduction in household income. Although consumers’ optimism about the economy has risen from this time last year, their optimism about their personal financial situation has remained flat. Likewise, the Consumer Confidence Index is up from last year, but remains well below its 2007 level. As consumers embark on holiday gift shopping, continuing economic concerns are expected to restrain their purchases — the National Retail Federation (NRF) predicts that holiday sales will decline 1.0% from 2008. However, the expected decrease is much less severe than last year’s 3.4% drop in holiday sales and well under the forecast 3.0% decrease in total retail sales for 2009.
Lifestyle Monitor data confirm that consumers plan to reduce their spending on holiday gifts, but there are signs that apparel sales may benefit from consumers’ frugal 2009 gift-shopping strategies. Monitor data indicate that apparel will be a popular gift, possibly reflecting pent-up demand for new clothing over the past year, along with reluctance to spend on big-ticket electronics.

HOLIDAY SHOPPING BUDGETS ARE DOWN

This year, consumers are tightening their holiday budgets — according to the Lifestyle Monitor, 64% of respondents are planning to spend less on gifts. To cut back, 70% of consumers said they would buy more gifts at mass merchants, and 95% said they would look for sales when purchasing gifts. Overall, consumers are buying less on impulse and planning their purchases more. Holiday sales have traditionally received a boost from shoppers making impulse purchases for themselves when shopping for gifts. However, that boost may be weaker this year, particularly among consumers with children. In 2009, 50% of consumers said they regularly or sometimes purchased something for themselves while shopping for holiday gifts, down slightly from 54% in 2008. Among consumers with children at home, the number fell significantly, from 60% to 47%.

Another change is that consumers plan to rely less on credit. Whether because they have less access to credit or do not want to increase their debt, 52% of consumers said they would not use credit cards to buy gifts. Led by national chains and off-price merchants, retailers are responding to the tight credit market by reviving in-store payment plans such as layaway, and 20% of consumers said they planned to buy holiday gifts on layaway.

HOLIDAY GIFT CHOICES

According to Lifestyle Monitor data, the top gift items this year will be gift cards (mentioned by 62% of consumers), toys (48%), electronics (43%), apparel (42%), food or beverages (27%), and jewelry (26%). Last year, holiday gift card sales took a hit, as retailers offered deep merchandise discounts — consumers were able to give more and spend less by purchasing gifts rather than gift cards (NRF). However, retail analysts believe that reduced inventories may prevent retailers from offering such deep discounts this year, making gift cards more attractive. From the recipients’ perspective, a majority (62%) of consumers would rather receive a gift card than an actual gift. Consumers have been spending less on themselves all year, and receiving a holiday gift card could allow them to shop for the items they really want and need. According to the Lifestyle Monitor, the consumers most likely to buy gift cards this year are women (63%) and shoppers aged 35 to 55 (45%). When asked what types of gift cards they planned to purchase, nearly half of consumers (46%) cited apparel stores, behind only restaurants (59%) and well ahead of electronics stores (33%). Among consumers planning to purchase gift cards, those most likely to say they would buy gift cards for apparel stores were consumers with children (50%, vs. 43% for households without children) and consumers aged 13 to 24 (55%).

APPAREL GIFTING

Though ranked fourth behind gift cards, toys, and electronics, apparel remains an important gift for the holidays. Over half (55%) of consumers plan to give either apparel or apparel-store gift cards this holiday season, and 73% plan to spend at least as much on gifts of apparel as they did last year. Consumers with children at home were significantly more likely than other consumers to report planning to buy apparel as gifts (45% vs. 38%). Following flatter-than-usual back-to-school clothing sales, parents may be using holiday gifts as a way to add items to their child’s wardrobe that they were not able to purchase earlier in the year.

When buying apparel as gifts, consumers spend more per item than they do on clothing they buy for themselves, and they choose somewhat different types of garments than for themselves. According to data for the past four years from NPD Fashionworld’s AccuPanel, consumers spent an average of 18% more on apparel items bought as gifts than on items bought for themselves. Cotton products dominate the choices of consumers planning to buy apparel as holiday gifts in 2009. Shirts, including T-shirts, were the most popular item (cited by 75%), followed by sleepwear (51%), sweaters (49%), jeans (40%), and outerwear (38%). Among parents buying gifts for their children, cotton denim jeans are a popular choice. In contrast, consumers buying gifts for adults are more likely to purchase apparel items for which size and fit are less of an issue, and which provide warmth and comfort — such as sleepwear and sweaters, both of which are cotton-rich products.

HOLIDAY APPAREL PROSPECTS LOOK GOOD

Although continuing concerns about the economy are causing consumers to scale back their holiday spending plans, holiday apparel purchases could be stronger than anticipated, driven by consumers with children. Mass merchants are likely to benefit the most from consumers’ desire to buy apparel as gifts while reducing their holiday gift budgets. Since the start of the recession, the percentage of consumers who report shopping for apparel at mass merchants has increased significantly (from 58% in Q1 2008 to 66% in October 2009), and this trend can be expected to continue through the holiday season. Intent to purchase apparel as gifts is strong overall and is significantly higher among consumers with children in their households. Garment categories popular as gifts — such as T-shirts, sleepwear, sweaters, and children’s jeans — will be key items for the holiday season, the popularity of apparel-store gift cards could further strengthen apparel sales in the first quarter of 2010.