Specialty Apparel Merchandise Strategy in a Recessionary Economy

OK, it's a long title.

Placesetter: one of the elements of a recessionary environment is a smaller overall market for just about everything. Some product categories shrink even further than others, driven primarily by gender, age and socio-economic considerations. While useful to think about, I'm going to ignore that aspect for now. What is relevant is that we have all "grown up" professionally in a relatively steady growth climate. Yes, it's been characterized by cyclicality, and trend lifecycles, brand lifecycles and other product or company specific variables. The underlying fact of our approach to establishing a merchandise strategy in the specialty apparel space, however, has been a relatively inelastic growth trend.

One of the most important merchandise strategic implications of that reality has been the development of private label specialty chains. The majority of specialty chains in existence today are private label (or exclusive brand, if you will). This is even more visible in certain segments, such as women's apparel. Here, outside of department stores (all levels), there are virtually NO large chains carrying external brands. In the face of this, the brands themselves have chosen, in some cases and with varying degrees of success, to become their own retailers. Men's apparel isn't quite this dominated by exclusive branding, although it remains relatively accurate. Kids specialty apparel too has undergone this transformation, although in truth, kids never has been very brand dominated. What difference does this observation make?

Exclusive brand merchandise strategies generally fall into one of two broad segments. Either the brand attempts to be a trend setter, or the brand represents trend-for-value. Trend setting brands have been, by and large, extremely attractive and at the same time high risk plays. The establishment and ability to sustain a trend-right brand positioning is extremely difficult. Abercrombie, Gap, Limited, American Eagle, Urban Outfitters, and many others have experienced varying degrees of success here.....over time. None has been able to sustain their "must have" status indefinitely. It might even be impossible, and the goal might simply be to have an upward trend line when measured over a five year period. Trend setters capture early adopters, who are less price sensitive, tend to have more disposable income, and spend more pre capita. The margins for Trend Setters, if supported by any reasonable form of supply chain competence, are very strong. If managed carefully, with an eye to sustaining "desirability" through intentionally managing supply at levels below demand, markdowns are relatively lower, promotions relatively unnecessary, and overall financials have the potential to be extremely appealing. Of course, there is a flip side to this. When "wrong", or supplanted by another brand, this segment turns sour in a hurry. Without a history of promotional activity, and worse, without a consumer generally influenced by that technique, it is difficult to liquidate trend-wrong merchandise. Financially, a bad season for a Trend Setter can get ugly very fast. Further, it is very hard to rebound immediately from a trend-wrong or trend-supplanted status. Once a Trend Setter has "lost" it's edge, it takes time and a great deal of money to get it back (inexplicable youth movements to the contrary).

Now let's factor in the recession. As noted, a recession means less available spend for everything. Trend apparel hurts here a great deal. The value delivery of trend apparel is psychological and emotional. Trend setting consumers feel better about themselves by being early adopters and establishing their own style. They move off one trend and onto another, in some cases, when adoption moves down through other psycho-social demand segments, eliminating the sense of unique expression which helps create the value. Wardrobes are updated less on physical "need" and more on "social" or "emotional" need. A side note: "early" takes on relative meaning. I am not talking about designer apparel consumers.

So what's the tie in to a recession? The biggest consuming segment for trend apparel is NOT the very early adopters. That segment is relatively small. The biggest segment is aspirational, even for Trend Setters. In both directions. Aspiring to look like early adopters and aspiring NOT to look like late adopters. Either way, this is a relatively insecure consumer segment obtaining value through lifestyle identification and personal status associated with making the right trend apparel decisions. As noted in this space, and in many others, aspirational purchasing drops dramatically during recessions. Simply put, there just isn't as much available income to drive the updating of the wardrobe as frequently or as comprehensively. Suddenly, in this environment, higher "needs" ( in a Maslow sense) take precedence. Like paying the bills. Which implies that the overall Trend Setter market is more elastic to the recession's impact than Functional apparel (words are relevant, don't get hung up).

For the Trend Setter, not only is there this continuing need to be "right" (very difficult to sustain or even to count on) now there is a very real shrinkage in overall demand. And almost by definition, Trend Setters occupying the same competitive niche cannot sustain duplicate trend positionings. If you look like your competition, what's the competitive difference? Price. At which point you really aren't a Trend Setter anymore. You are a Trend-For-Value player. So the pressure is on to be "different" and "unique"......an enormously high risk proposition when the upside doesn't carry anywhere near the potential as it did a year ago. Playing as a Trend Setter means, in general, being the one or two of your kind doing well, or having an enormously bad year. On a single case basis, the upside potential is still there. However, given the consumer spending pattern changes which occur during recessions, the upside for the whole segment is vastly reduced. While the downside remains, and is amplified by those same changes in consumer dynamics.

The post will outline the implications for Trend-As-Value players (and maybe I'll have a better name for you guys by then!)