Innovative foreign-based apparel retailers ringing up brisk sales in the United States and turning their stores' inventories faster than a fashion model strutting down the catwalk. And they are poised to displace American icons on their home turf.
Sweden's Hennes & Mauritz (H&M) and Spain's Zara set the tone by establishing firm beachheads in the U.S. and each now operates dozens of stores. Now, other overseas retailers like Mango, Top Shop and UNIQLO want to emulate that success and grab a lion's share of the fashion category within the $9 billion specialty apparel market.
For decades, U.S. apparel retailers such as Gap, Guess and Levi's have dictated the fashion market stateside. But, that's changing, with industry observers saying that U.S. retailers have gotten too predictable and boring to excite shoppers.
That's not good news for American apparel retailers, who struggled through most of 2007. Year-to-date the U.S. apparel sector posted a same-store sales decline of 1.8 percent, according to ICSC, compared to 1.1 percent growth in 2006. Particularly challenging this year were the months of September and October when same-store sales fell 4.0 percent and 5.2 percent, respectively.
And, overall net sales aren't expected to get any better until 2009, when the market bottoms out, says Kelly Tackett, senior consultant with TNS Retail Forward, a Columbus, Ohio-based consulting and market research firm.
“The apparel retailers are facing extremely tough prior year comparisons and a lot of them have maturing store concepts and are facing cannibalization,” says Tackett.
While the deepening housing slump, tightening credit and rising energy prices are hampering retail sales, they are not entirely to blame. The real problem is that many of the American chains' offerings verge on boring, forever revolving around different combinations of jeans and a tee shirt, says Craig Johnson, president of Customer Growth Partners, LLC, a New Canaan, Conn.-based research firm.
As a result, most of the fashion apparel store growth in 2008 will come from international firms, especially chains that focus on affordable prices and rapidly changing inventories. H&M, which delivers new items to its stores on a daily basis, opened 15 stores in the U.S. this year. Meanwhile, Zara claims it needs just two weeks to produce and deliver new product to its 25 U.S. stores compared with the industry average of nine months.
There are some U.S. retailers doing a good job of breaking out of that “boring” mold. Tackett and Johnson both cite Zumiez, an Everett, Wash.-based company that specializes in apparel for skateboarders and snowboarders, and operates 266 stores nationwide. So far in 2007, Zumiez has opened 31 stores and is scheduled to open another 19 by year's end. Eventually it plans to have 800 U.S. locations.
Another U.S.-based chain, Forever 21, seems to be outperforming its peers. The Los Angeles-based, privately held retailer brings in crowds of teens and young women with its rapidly changing fashions sold at affordable prices. The chain, which already operates more than 400 locations around the country, continues to look for new expansion opportunities, says Roger D. Burghdorf, senior vice president with New York City-based RCS Real Estate Advisors and Forever 21's broker.
Further competition for retail space (and consumer dollars) will come next year with the U.S. arrival of Top Shop, a high-fashion, low-cost London-based chain in the mold of H&M and Zara. Top Shop is said to be under contract for a 90,000-square-foot New York store, according to Robin Sande, of New York-based retail brokerage firm Robert K. Futterman & Associates.
“Mango is expanding, H&M is doing a big expansion and I see Zara expanding,” says Alan Napack, senior director with the brokerage firm Cushman & Wakefield. “The fashion tenants seem to be doing more of the expanding, particularly on the women's side.”