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Stock Strategist Industry Reports

Is Traditional Apparel Retailing Dead?

No, says analyst Bridget Weishaar, but it will look much different in the future.

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Given the recent negative performance of many apparel retailers and some calls that traditional apparel retailing is dead, we are addressing our thoughts on these issues and discussing which subsectors and companies we see as positioned best for long-term success. In our opinion, there has been a secular shift in apparel retailing that is a persistent force. We believe the current trend toward value over brand is here to stay. Unless a product can perform notably better than the competition (keep you warmer, keep you drier, perform better in athletic situations), consumers appear unwilling to pay a premium simply to own a brand. We also think that shifts in wallet share are here to stay, with experience (travel, restaurants) valued over apparel, and other costs--including healthcare, education, and housing--rising in share. Finally, we think the shift in distribution channel toward digital will persist. As a result, we agree that apparel retail growth is not likely to return to historical levels.

Having acknowledged that, we do believe that we are at a low point in the apparel retail cycle and there is future upside. We do not believe brick-and-mortar apparel retailing is dead; however, it will look much different in the future. We think there is a place for stores where consumers can touch fabrics, try sizes, and see fit. However, the apparel industry has experienced much self-inflicted near-term malaise. Many management teams have been overly optimistic regarding inventory levels and have not converted to more modern, responsive supply chains. This has resulted in a highly promotional retail environment that has forced even well-run companies to discount to remain competitive. Also, we think we are nearing the end of the athleisure fashion trend. With consumers having enough skinny and yoga pants to clothe themselves for a while and no new fashion must-haves, nothing is driving discretionary purchases.

Bridget Weishaar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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