Shoppers are slowing down on clothing purchases, according to UBS reports
In the ever-evolving world of retail, 2023 is shaping up to be a challenging year for department stores. UBS analysts have predicted an increase in store closure rates, as tough traffic, sales, and margin trends persist.
The decline in the U.S. middle class and the subsequent impact on the apparel market is one of the key factors contributing to this trend. Financial pressure from rising prices and expectations of more inflation are squeezing household budgets, and consumers are expecting a declining labor market.
This financial strain has led to a decrease in consumers' willingness to spend on apparel, footwear, and accessories. In December 2020, U.S. consumers' spending in these categories decreased by 15.7% compared to 2019, marking the biggest decline since the pandemic began.
The retail segments where footprint expansions are favorable include off price and luxury, which are directly competing with department stores. The situation is especially dire for department stores, where UBS analysts anticipate growth "well below average" and weak profits.
The current store count is on pace to be down 1.2% year over year in the fourth quarter and just 0.3% in the first half of next year. This decline in department store store counts has made sales growth harder to come by for retailers like Nordstrom and Kohl's.
Store closures were rampant in 2020, with an average of 1,800 stores closing each quarter between Jan. 1 and March 31, 2021. However, it's important to note that the search results did not provide specific information about the main sponsors of department stores planning to close a significant number of their physical locations in the coming years, nor about alternative locations they consider.
The apparel market has experienced a decline over the last several years. Despite a 33% drop in department store store count from Q4 of 2019 to Q1 of 2021, these stores have been relatively stable since then.
Brick-and-mortar retailers in general will likely be forced to abandon more locations, not because of a challenge from e-commerce, but as a correction to their late-pandemic reluctance to do so. U.S. consumers are deferring apparel purchases at a higher rate than they did one year ago and are planning to shop for sales more often, buy more store brand products, take fewer shopping trips, and shop closer to home.
The weakness in apparel spending is showing up across all income levels, with even higher-income spending plans down 13.3%. UBS analysts predict that many retailers dependent on apparel sales face gloomier prospects than the current retail numbers from the government suggest.
While these predictions paint a grim picture for department stores, it's important to remember that the retail landscape is always evolving. As stores close and consumer behaviours continue to shift, it will be interesting to see how retailers adapt and innovate to meet the changing needs of their customers.
