While clothing is a necessity, the amount of money spent by consumers for clothing is highly dependent upon the level of disposable income available for apparel. During periods of economic decline, consumers realign their allocations of income. Instead of purchasing new clothing from higher-end name brand specialty stores or department stores, they may spend their money in big box retail stores or discount clothing stores, or choose to not purchase any new clothing at all. This mix of substitution and decreased consumer spending has been a lethal mix hindering high-end retailers but a help to larger discount providers. More information about substitute goods and recent trends in retail in general was published in our featured article, 2009: Chinese Calendar – Year of the Ox; Retail Calendar – Year of the Bear.
The domestic manufacturing of clothing in the U.S. shifted dramatically between 1980 and 1996 as the clothing industry transitioned from industrial countries to developing ones. The amount of apparel imports brought into the U.S. has increased significantly, from $24.4 billion in 1990 to more than $93.1 billion in 2008. Year-to-date through August 2009, imports had totaled $52.8 billion, slightly down from the $61.6 billion reported year-to-date in August 2008.
The bulk of these imports are brought into the U.S. from China and India. In January 2005, the quotas limiting imports into the U.S. were abolished; however, temporary quotas were added back on some products, such as jeans, cotton knit shirts and undergarment, due to the significant increase in imports from China. In October 2005, an agreement was reached placing limits on certain product categories. These limits restricted import growth from China to a range within 8% to 10% in 2006; 13% in 2007; and 17% in 2008.
Inventory supply levels were much higher than anticipated after the 2008-holiday season, which lead to many retailers to be in a very over-inventoried position. According to CNNMoney, some retailers were trying to unload excess inventory, including coats, sweaters and designer jeans, to overseas markets. This situation of retailers being oversupplied, led to a ramp-down of purchases going into the 2009-holiday season. At this point, most of the excess inventory left over from last holiday season is gone, but retailers and distributors are running much leaner this year, and it would not be at all surprising to see retailers run out of popular items this season.
The retail clothing industry is a highly competitive one. All stores, regardless of type, face competition within a variety of factors, including price, the quality of the finished product, the level of customer service provided and promotional offers. Consumers are generally aware of price and, in an economic downturn, will do more comparison shopping prior to making their purchases. Further, the internet has enabled consumers to more easily comparison shop and seek promotional offers before deciding which retailer to ultimately purchase from.
The retail clothing industry has seen an increased demand for second-hand (used) clothing; however, the Consumer Product Safety Improvement Act may limit the number of stores able to sell apparel second-hand. In February 2009, a law was passed which bans the sale of goods containing certain substances, such as lead, in children’s products, including apparel. Unfortunately, the burden of testing is on the retailer, which many stores are not able to afford, resulting in some ceasing operation entirely.
The ability of consumers to purchase clothing is dependent, in part, on having disposable income to spend. According to the U.S. Census Bureau, the median level of income households have today is below the level from 10 years ago (noted in blue on the graph below). Of those households, the number at or below federal poverty standards has increased by more than 421,000. Declining household income forces consumers to cut back on spending for both discretionary and necessity items.
In the U.S., consumer spending has been funded primarily through credit card debt, mortgage financing and home equity loans. According to the Federal Reserve, from 2005 through 2009, consumer debt increased at an annual rate of 5.5%. Consumer credit was available in the form of revolving credit extended primarily by financial institutions and department stores. However, with tightening credit requirements by the card issuers, the growth trend in available consumer credit reversed for the first time in 25 years and actually decreased 2.5% from February 2009 to August 2009. This has further limited the ability of the consumer to make purchases previously charged since they must now be purchased in cash.
One positive outlook for the retail clothing industry is that even during economic challenges, the population of the U.S. will continue to grow. According to the U.S. Census Bureau, the number of births is expected to continue to increase from approximately 4,268,000 in 2010 to more than 5,653,000 by 2050. Secondly, international immigration into the U.S. is also expected to increase from approximately 1,338,000 to more than 2,047,000 in the same time period. Combined with changing expectations, styles and the clothing needs of a growing child, this industry can expect demand to continue to grow once the economic outlook improves.
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