The State of Apparel Retail
Part 1: Revenue Rollercoaster
Retail turnover is a critical metric to track as a textile supplier. Turnover informs about market trends, consumer preferences and financial health of retail customers. It can help suppliers adapt to changing market conditions, guide them in adjusting product offerings, inform strategic planning (e.g. capacity expansions, product development), and help optimize production and inventories.
Within the span of the past five years, quarterly turnovers across the sample* fluctuated heavily. While the typical seasonal gap between the first quarter (usually the quarter with lowest turnover) and the fourth quarter (usually the quarter with highest turnover) is about 20-30%, in 2020 the Covid-induced growth between Q1 and Q4 2020 was >66%. Turnover in Q4 2021 went up another 15%. For individual brands, the Q4 rally in 2021 was even more pronounced – companies like Spanish Inditex, Polish LPP and US Ralph Lauren posted Q4 2021 turnovers that were +25%, +49% and +27% higher than their 2020 equivalents.
The textile supply chain is not prepared for such variations – raw materials, machinery, manpower, etc. are set up for stable production. Supply shortages and cost increases in 2021 were inevitable. The retail recovery and continuing supply shortages in 2021/22 were likely the main reasons for the significant reduction of inventory during 2021 and subsequent build-up of inventories, with ripple effects on textile suppliers (more about inventories in the next article).
Turnovers in 2022 were unspectacular, Q4 2022 being flat compared to Q4 2021. Note that this is in nominal terms. Adjusting for inflation, Q4 unit sales (which are critical for the textile supply chain), likely declined. 2023 remained subdued, with sales until Q3 relatively flat compared to 2022. By the time of this analysis, only 7 companies published Q4 2023 results. Of these 7 companies, only 3 recorded growing revenues (>3% compared to Q4 2022), while the turnover of four companies stagnated or declined (<3% change vs. Q4 2022), indicating that the industry has not yet recovered.
While total turnover in Q3 2023 was about 11% higher than in Q3 2019 (notably in nominal terms), looking a level deeper reveals that almost every other company (43%) had turnovers that were LOWER compared to Q3 2019, exposing that the market produced relatively clear “winners” and “losers”.
Noteworthy positive examples are Lululemon, Aritzia and LPP, whose turnovers grew significantly in this period.
Total turnover growth in Q3 2023 compared to Q3 2019 across the entire sample amounts to USD 11.2bn or 11%. What surprises is that about 2/3 of this growth comes from just five companies: TJX, Inditex, Lululemon, Dick’s Sporting Goods and Puma. Many other companies’ turnover was flat or even declined.
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The devil is in the detail. Turnover is always a combination of # of units sold multiplied by the price per unit. To grow turnover, either unit sales or price per unit has to grow, or both. Textile producers are usually volume driven (machines need to run at maximum utilization to be economically viable), so the # of units is often the more important metric.
To get a reasonable view on unit growth, one would have to understand how sales prices in Q3 2023 developed compared to Q3 2019, and then separate turnover growth into 1) volume growth and 2) price growth. To get a first view, I attempted find this out for the "Top 5" and "Bottom 5" contributors to turnover growth (as mentioned above), using data from EDITED*. For each company (Zara acting as proxy for Inditex), I compared prices of the largest product category in Q3 2023 and Q3 2019 (in all cases the Tops category, with the exception of Lululemon where it is Bottoms). Here is a very rough estimate of price differences between these two quarters:
Admittedly, these numbers are a speculative (I might review them more thoroughly in a future study). However, one thing is relatively certain: A large portion of turnover increases across the sample is the result of higher prices, not higher volumes. There will be many retailers, where unit sales went down (and as a result, units ordered likely went down). For textile suppliers, this is not good news. For the world, it might well be (aren’t we all in agreement that we should buy less?).
And there is one more thing that these number’s don’t tell. The “dragon in the room”. One company, whose numbers are not included in the sample, but likely dwarf any of the companies who are, is SHEIN. There are no official numbers out there, but estimates assume SHEIN's turnover growing from about USD 3bn in 2019 to over USD 30bn in 2023. This growth is well above turnover growth of the top companies in the sample combined – we will learn more once the bell rings for Shein’s supposedly USD 90bn IPO later this year.
The “Top 10”
How did the largest players do? In this and the upcoming articles, I will have a separate look at the ten largest companies in the sample (see names in the chart below). Together, these companies account for 60% of total turnover in Q3 2023. The picture is similar here – only half of the top companies grew, while the other half posted declining turnovers in Q3 2023 compared to pre-Covid Q3 2019.
Summary & conclusions
*Notes and disclaimer
Statements in this article series are based on publicly available quarterly earnings data, blended with data from the EDITED Retail Experience Platform and my own experiences over the past five years. While the analyses have been done thoroughly, I don’t guarantee accuracy or completeness. Please reach out if you have any questions on data or methodology.
Here is the list of companies that are included in the sample: Abercrombie & Fitch, Adidas, Aeffe, AEO Inc, Apranga PVA, Aritzia, Bj?rn Borg, Burlington, Canada Goose, Capri, Carter's, Cato, CITI Trends, Columbia, Destination XL, Dick's Sporting Goods, Dillard's, Duluth Trading, Express, Fenix, Ferragamo, Five Below, Gap Inc, G-III, Gildan, Guess, H&M Group, Hanesbrands, Hibbett, Hugo Boss, Inditex, J.Jill, Kohl's, Kontoor, Lands' End, Levi Strauss, Lojas Renner SA, LPP, Lululemon, Macy's, Nike, Nordstrom, Oxford Industries, Puma, PVH, Ralph Lauren, Revolve, Roots, Ross Stores, Sportsman's Warehouse, Stockmann, Tapestry, The Buckle, The Children's Place, Tilly's, TJX, Urban Outfitters, Vakko, Vera Bradley, VF Corp, Vince, Zalando, Zumiez.
General Manager at Unifi Turkey
1 年Thanks a lot for this truly insightful article, Johannes! As you pointed out, the textile market is akin to a rollercoaster, and this time the industry was caught even less prepared because of events like COVID-19 and geopolitical tensions. Adjusting to these fluctuations has never been easy. I hope the industry doesn't lose focus on supply chain security, which is often overlooked when supply exceeds demand, as it does now. At the same time, the erosion of brand loyalty among consumers, primarily driven by price considerations, is a significant trend worth noting. This shift underscores the need for companies to reassess their strategies and prioritize factors beyond short-term gains. In this rapidly changing landscape, it's more crucial than ever for industry players to stay close to the market and the end user. The pace of change is accelerating, and being in tune with evolving consumer preferences and behaviors is essential for staying ahead. While the industry undergoes this period of flux, I'm hopeful that the restructuring you alluded to will pave the way for a more sustainable future.
Enterprise Sales Executive~Retail Expert~Apparel-Beauty-Homeware~Retail Tech~SaaS~Sustainability
1 年Interesting Johannes Stefan , thanks for sharing. Clearly, the entire clothing industry is going through massive changes. These changes are mainly driven by a change in consumer behavior (how, what, when, where to consume...) and accelerated since Covid, the war in Ukraine with its effect on inflation and now another disruption in the supply chain with the conflict in Palestine etc. I think the results you have shown reflect this unique combination of challenges over the last 4 years for retailers and brands, creating a high level of unpredictability for them and therefore across the entire value chain. This also results in an unprecedented situation where mergers and acquisitions, bankruptcies, etc. are occurring. are multiplying and participating in the consolidation of the market where “new” players have emerged. On top of all this, there is still a strong conflict between consumers' aspiration for sustainability and the price they are willing to pay for it (or can afford), which of course impacts retailer/brand and supply chain decisions. I'm afraid this situation will last for a few more years