What’s the Story?

Coresight Research analysts discuss their outlook for their sectors for the 2021 holiday season, with a focus on the directional outlook and themes that we expect to see. In this report, we present the holiday outlook for the US apparel sector.

US Holiday Outlook: Apparel Retail

Directional Outlook US consumer spending on apparel and footwear has recovered substantially, exceeding pre-crisis levels from 2019 in every month in 2021 so far. On a two-year basis, apparel spending growth averaged 16.3% each month between January and August 2021. Year over year, apparel spending growth averaged 41.8% each month in the same period. We are seeing more consumers renew their wardrobes as restrictions ease and they resume social activities, despite the spread of the Delta variant. Coresight Research estimates that year-over-year growth in apparel and footwear consumer spending will moderate to the mid-teens in percentage terms for the holiday season, reflecting the slow recovery in consumer spending in holiday 2020. We expect the two-year spending growth rate to moderate to low-to-mid teens in percentage terms. We expect to see continued apparel demand in the sector, driven by athleisure, casualwear and intimates categories, as well as a rebound in demand for dresswear, as consumers are increasingly returning to socializing. Apparel specialists witnessed exceptional growth in the first eight months of 2021, with sales surging by an estimated 70% year over year, against very weak comparatives from parts of 2020. We estimate that total apparel specialists’ year-over-year sales growth will moderate to the high teens in percentage terms in the holiday quarter. While we model a slowdown inin apparel specialists’ sales against more demanding comparatives from holiday 2020, sector sales will remain very strong—we expect sector sales to be up by high single digits versus pre-crisis 2019. Among nonfood categories, apparel is set to make the largest year-over-year spending gain during the holiday quarter, according to Coresight Research’s September 13 consumer survey of US respondents aged 18+ who spend on the holiday season and expressed a spending intention for holiday 2021. In the apparel category, a net 6.1% of all consumers plan to spend more (the difference between those expecting to spend more and those expecting to spend less) during the holiday quarter this year compared to last year. Furthermore, recent commentary from apparel and footwear brands and retailers supports our expectations of a strong uptick in apparel sales during the holiday quarter. Amid an inflationary environment, we expect US apparel and footwear brands and retailers to focus on discounts and promotions to meet the demands of price-sensitive shoppers. In a Coresight Research survey conducted on August 30, 2021, over one-half of respondents said that they have observed price rises in nonfood categories, such as beauty, clothing and home goods. We found that the top three mitigating behaviors in nonfood (including clothing) are seeking out promotions or discounts, switching to cheaper brands and cutting back elsewhere. Nevertheless, shoppers will head into the holiday quarter with record savings on the back of Covid-19 stimulus payments. In addition, the apparel sector’s key consumer demographic of young parents will likely continue to benefit from monthly Child Tax Credit checks, raised from $2,000 to $3,000 from July 2021. By the end of this year, consumers will have received approximately $2.7 trillion in total stimulus payments and we believe at least a part of those dollars will be utilized to absorb inflation in retail categories, including apparel. Apparel brand owners and retailers stand prepared for a consumer demand surge in the holiday season. Major apparel retailers are planning to capitalize on scale advantages and bring in inventory earlier than normal to protect holiday sales. Several retailers intend to protect holiday inventory by securing significantly expedited deliveries at an additional cost to hedge against the impact of supply chain disruptions. Despite consumers’ return to in-store shopping, we expect the e-commerce channel to drive a substantial share of holiday apparel sales. Major apparel brands and retailers continue to see strong momentum across their e-commerce channels. Three Themes To Watch in the Apparel Sector This Holiday Season

1. Consumer demand for omnichannel shopping will remain strong during the holiday season. We expect apparel brand owners and retailers to continue to extend their omnichannel capabilities, including offering buy online, pick up in store (BOPIS) services and curbside pickup, as well as expanding ship from store capabilities. These omnichannel offerings will not only help retailers to preserve sales but also save shipping costs and reduce delivery times.
2. Based on retailers’ reported top-performing apparel styles and future expectations, athleisure, casualwear and intimates will be the most popular categories this holiday season. In addition to these categories, retailers also intend to focus on dresswear, which is recovering substantially.
3. To enhance holiday sales and manage peak season deliveries, apparel brand owners and retailers are optimizing their operations, including refining assortments to improve in-stock positions of the most in-demand categories. We are also seeing brands and retailers planning promotional efforts, hiring additional staff in existing fulfillment centers and adding additional logistics partners.