Looking for Growth as Apparel Sales Slow

It appears that 2024 will be a challenging year for retail, but at least some retailers are in preparation mode.

Fashion retailers didn’t have much to celebrate when February retail sales data were disclosed on Thursday. Apparel and accessories retailers saw sales slip 0.4 percent to $26.29 billion from $26.41 billion in January. Sales at department stores slipped 0.2 percent to $11.06 billion from $11.08 billion. Even nonstore retailers—those selling online—saw a slight decline of 0.06 percent to $118.77 billion from $118.84 billion.

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Slowing sales didn’t go unnoticed by the retailers that posted fourth quarter and year-end results over the past few weeks, particularly as many also had to provide early projections on the next year’s outlook to Wall Street investors. Fashion sales for the most part were down as consumers pulled back on discretionary spending to focus on everyday essentials.

At Dillard’s Inc., the company said juniors’ and children’s apparel were the weakest categories in the fourth quarter, followed by women’s accessories and lingerie and women’s apparel. And Dollar Tree chairman and CEO Rick Dreiling said its lower-income consumers “continue to be very deliberate about their spending,” which means sales in categories such as apparel and home remained weak in the fourth quarter. The dollar store plans to shutter 970 Family Dollar banner stores and 30 Dollar Tree doors.

And even Macy’s is shrinking its store base in orders to grow, jettisoning 150 “underproductive” stores by the end of 2026. That would allow Macy’s to focus on its 350 higher-productive locations. The company is also focusing on its luxury base, adding 15 new smaller store Bloomie’s concept doors and at least 30 new Bluemercury locations.

The company has a new go-forward strategy dubbed “A Bold New Chapter, a plan to return the retailer to top-line growth over the next three years. What happens next is anyone’s guess since the chain is in the midst of battling activist investors Arkhouse Management and Brigade Capital Management. New CEO Tony Spring told investors that “inflation has slowed but so has labor and wage growth. As such, we expect our consumers to remain under pressure.”

Other retailers are also looking at how they can grow, adapting strategies to suit their specific needs.

Target’s adding stores and supply chain facilities

“[I]f you think store shopping will wind down anytime in the next decade, we’ll politely disagree on that point once again,” Brian Cornell, Target’s Chairman and CEO, told analysts in its quarterly conference call.

He said the company expects to “open more than 300 new, mostly full-size stores, adding billions of dollars in incremental growth, while continuing to remodel stores with plans to invest in the vast majority of our nearly 2,000 stores in the next 10 years .”

And as for supply chain technology, the company in less than 10 years, has “created, acquired and constantly advanced sortation centers, upstream distribution cents” and other innovations, such as in logistics.

“At least 10 additional supply chain facilities are in the pipeline and will be operating within the next decade,” Cornell said. He added that a team of engineers, data scientists and product managers are focused on integrating AI to best serve customers, such as in same-day fulfillment whether drive-up or order pickup. The company’s also revamping its Target Circle loyalty program. Cornell said at an Investor Day meeting that it could grow total company revenue at an average rate of 4 percent each year, or the addition of $50 billion to the $107 billion in sales in 2023.

The mass discounter is also looking at its checkout options to create convenient shopping experiences, a move that will keep more shoppers returning to its stores. Last week, Target said it was rolling out its Express Self-Checkout, after testing the pilot last fall in 200 stores. The Express option, which is limited to shoppers with 10 items or less, will be an option at most of the discounter’s nearly 2,000 stores nationwide. Target also said store managers have the flexibility to open more lanes staffed by store associates as needed, as well as set self-checkout hours based on store needs.

Dollar General’s shrink problem

The dollar store also took a closer look at its self-checkout option, but for a reason different from Target.

In general, shoppers at Dollar General Corp. spent less when they shopped at its stores in the fourth quarter, while same-store sales rose on consumables and declined on apparel purchases. But its bigger headache is shrinking.

The company also said that for the year, gross profit as a percentage of net sales fell to 30.3 percent in Fiscal 2023 from 31.2 percent in Fiscal 2022, primarily driven by increased shrink and inventory markdowns, lower inventory markups and a greater proportion of sales from lower margin consumables sales category, and increased damages.

Elevated shrink continues to weigh on the dollar store’s profitability. CEO Todd Vasos said at the Dollar General’s fourth-quarter earnings call that it has begun converting some or all self-checkout registers to assisted-operated options in 9,000 doors. Self-checkout has been an option in more than 14,000 locations. For those stores that still have the option, the retailer will limit transactions to five items or less.

“And finally, over the first half of the year, we plan to completely remove self-checkout from more than 300 of our highest shrink stores,” Vasos said. He added that the actions are expected to have a “material and positive impact on shrink as we move into the back half of the year and into 2025.”

He said other actions include inventory reduction efforts to reduce shrink, including the removal of certain high-shrink items from high-shrink stores, as well as incentive programs for store managers to “encourage and foster a greater sense of ownership.”

Kohl’s sees babies, gifting as white space opportunities

The department store retailer is kicking up its baby category with a new partnership with Babies “R” Us, owned by WHP Global, opening in-store shops in 200 Kohl’s doors in the fall. The shop, about 1,500 square feet on average, will sell baby gear, accessories and furniture, all complementary items to the retailer’s existing infant and toddler business.

“In addition to stores, we will offer baby gear products digitally and launch a baby registry later this fall,” CEO Tom Kingsbury told analysts during a fourth quarter conference call on earnings. The shop-in-shop concept isn’t new to Kohl’s. The retailer already has dedicated Sephora shops in 910 of its stores.

In addition to rebalancing its apparel and footwear assortment mix, the company plans to expand its in-store dress shops to 700 locations.

Kingsbury said the retailer also wants to be “known for gifting headquarters,” as well as building out its impulse business through the addition of queuing lines to 350 stores to bring it to a total of 435. Those changes, plus more goods in the under-penetrated home and pet categories, could add “more than $2 billion in sales opportunity over the next several years,” he said.