It was a bad week for retail.
The winter was warmer than expected, and apparel retailers face new competition from Amazon.
But it’s all being made worse by the fact that all of these companies are turning to sales and promotions to try to win customers back and clear out overstocked inventory. If everyone’s doing it at the same time, then a sale doesn’t really generate the same kind of incentive, or traffic that it might have before.
“Everyone finds themselves in a tough environment, and they’re doing what they can to stimulate sales,” Nordstrom’s president of merchandising, Peter Nordstrom, said on its earnings call. “And I think it just depends on your customer. For some, I guess that means price promotion is a lever that’s going to really compel their customers. I think what you’re hearing from us is that’s not the most compelling lever for our customers. So what can we do about that?”
Traditional retailers aren’t just competing against each other. They’re competing against the new normal of pricing (and supply chains) for young women: fast fashion.
Zara, for instance, has schooled everyone in handling inventory and a supply chain, dispensing on-trend runway-style apparel at affordable prices.
The price point is also key: young women know they can get trendy apparel for less, so why pay more? And as if to burn traditional retailers even more, many fast fashion chains are offering higher priced capsule collections to keep their customers when they might typically “graduate” to purchasing higher quality apparel.
It doesn’t help that malls are declining. As anchor stores shutter, it spells disasters for malls, so it sets off an unfortunate cycle.
“We are in — we’re primarily in malls. And when we see mall traffic go down, it hurts us,” James Nordstrom, Nordstrom’s President of Stores, said on the earnings call. “And we can see that in certain areas of our business. Clearance sales is a good example of that. While our full-price, regular-price sales have been hanging in there, our clearance sales over the last quarter or two have really been down. And I think that jives with mall traffic being off. So we’re looking at how can we, regardless of the mall that we’re in, give the customer a compelling reason to make a trip to the store?”
But why come to the store when you have Amazon, which is threatening traditional retailer more rapidly by the day?
Morgan Stanley predicts Amazon will hold 19% of the entire apparel market by 2020, up from 7% right now.
If it’s not obvious that department stores are already suffering, Morgan Stanley anticipates that department stores will continue decline, estimating that they will make up only 7% of the apparel market by 2020. As a reference point, they comprised approximately 26% of the market share in 2005.
All of this means that retail as we know it is completely changing — it’s faster, cheaper, and no longer at the mall.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.
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