Apparel Industry

INDUSTRY: APPAREL RETAILERS
INTRODUCTION
Retailers in the apparel industry are primarily engaged in the distribution, merchandising, and sale of men’s, women’s, and/or children’s clothing to consumers. Apparel retailers include department stores, mass merchandisers, specialty stores, national chains, discount and off-price stores, outlets, and mail-order companies. A relatively new development is the rise of electronic forms of retailing such as interactive TV and on-line shopping services. Some retailers who sell their own private labels go beyond their traditional role as distributors and become directly involved in the design and production of garments from manufacturers and contractors.
SIC CODES RELATED TO THIS INDUSTRY
SIC Code Industry Name
5136 Men’s and boys’ clothing
5137 Women’s and children’s clothing
5611 Men’s & boys’ clothing stores
5621 Women’s clothing stores
5632 Women’s accessory ; specialty stores
5641 Children’s and infants’ wear stores
5651 Family clothing stores
5699 Misc. apparel ; accessory stores
INDUSTRY CHARACTERISTICS
Apparel sales have shown positive gains over the years which reflect a vibrant U.S. economy and increasing incomes. All apparel retailing industry sectors are heavily dependent on consumer spending. Since, consumer spending represents two-thirds of the U.S. economy these retailers become extremely vulnerable to wide economic swings. These retailers must do a good job of managing their inventory levels, personnel needs, and style/fashion trends to ensure they will not lose their consumers business during up and down periods. That is why many major apparel retailers such as The Gap, and Wal-Mart can have 20 percent growth over 20-some years. They stay focused on their businesses and are always trying to do better. They constantly question everything, though even the best companies make merchandising mistakes. But the leaders in this industry know how to rectify their mistakes.
Recently, the apparel industry hasn’t been doing all that well. During the 2nd Quarter of 2000, apparel sales have tapered off for several reasons. Increasing interest rates have slowed the U.S. economy, consumers have built up their stock of most clothing items, and there has been a lack of exciting new fashions on the market
INDUSTRY ENVIRONMENT
Distribution Channels
As discussed earlier, apparel retailers include department stores, mass merchandisers, specialty stores, national chains, discount and off-price stores, outlets, mail-order companies, and online sales. Department stores were once-and some still are- perceived as the apparel leaders, but these stores in reality only sell about nine percent of the garments consumers buy annually. Meanwhile specialty stores like Old Navy, The Gap, and Abercrombie & Fitch have about a 13 percent apparel unit share. Mid-tier retailers like Sears, JCPenny and Kohl’s have a 14 percent unit share. According to NPD, a market research company, catalog companies represent almost 10% of apparel retail sales through direct mail. Consumers have less time to shop and thus, catalog purchasing offers a time-saving convenience for straight re-buy purchases. The internet represents approximately $6.5 million of e-commerce purchases, but only represents 0.6% of total apparel on-line sales. This segment is lower because of concerns regarding speed, ease-of-use, and security problems. When these problems are solved, this sector is likely to mirror the catalog sales channel and may substitute for catalog sales. Lastly, discount stores, such as Wal-Mart and Kmart have 45% of the apparel market. These statistics are shown in the pie chart below:
CONSUMERS
As shown in the chart above, the women’s consumer segment dominated the U.S. apparel sales market in 1999. Throughout the years, women have been constant and dominant consumers in this industry. Womens apparel sales growth was 3.7% and men’s apparel growth was 4.1%. Women buy at a constant rate, whereas men’s apparel sales have been growing. Men have outpaced total market growth for the second year in a row. Girl’s and boy’s apparel rose 0.5% and 3.8%. Women’s apparel accounted for 52% of all apparel sales. The men’s segment accounted for 31% of total apparel sales.
COMPETING AND COMPLIMENTARY PRODUCTS
In a broad view, the retail apparel industry competes with all the other sectors in the retail industry. These different sectors include electronic retailers, wholesales, other discount stores, shoe stores, convenience stores, and so on. Many of these different sectors also have combined together. In this industry, a company often operates in various divisions because it is more profitable that way. The charts below show the state of the Retail Industry and some of the top retailers/competitors in it.

LARGEST RETAILERS
The top retailers are:
Company 1999 Revenues (000)
1.)Walmart $166,809,000
2.)The Kroger Company $45,352,000
3.)Sears, Roebuck and Company $41,071,000
4.)The Home Depot $38,434,000
5.)Albertson’s $37,478,079
6.)Kmart Company $35,925,000
7.)Target Corporation $33,702,000
8.) J.C. Penny $32,510,000
The top retailers in each retail category are:
Value/Discount Stores
Company 1999 Sales (000) 1998 Sales (000)
Wal-Mart $108,721,000 $95,395,000
Kmart 35,925,000 33,674,000
Target 26,080,000 23,014,000
Sam’s Club 24,801,000 22,881,000
Meijer 9,500,000 8,000,000
Apparel Stores
Company 1999 Sales (000) 1998 Sales (000)
Gap $11,635,398 $9,054,462
Limited 9,723,334 9,346,911
TJX 8,795,347 7,949,101
Intimate Brands 4,510,836 3,885,753
Spiegel/Eddie 3,210,225 2,935,411
Bauer
Department Stores
Company 1999 Sales (000) 1998 Sales (000)
Sears $29,775,000 $30,429,000
JCPenney 18,964,000 19,114,000
Federated 18,217,000 15,833,000
May 13,869,000 13,048,000
Dillards 8,677,000 7,770,000
INTERNATIONAL OUTLOOK
Imports and Exports: The largest suppliers of imports of apparel products to the U.S. market are China, Hong Kong, South Korea, and Taiwan. These four countries accounted for nearly half of U.S. imports of all apparel products.

Many U.S. retailers and catalog companies have established sales outlets in other countries to sell U.S. apparel products. Men’s outerwear is one of the largest export categories. Men’s and boys trousers are the most important products exported to Japan, Canada, and the European Community (EC), followed by men’s and boys’ knit shirts. Menswear and women’s outerwear exports recorded particularly steep increases in 1993. Children’s wear and women’s and children’s underwear continue to make strong export gains. Japan, the EC countries, and Canada are the largest customers for U.S. apparel, with steep gains in shipments the past few years. Sales of completed garments to Mexico also grew sharply. After the United States and Canada implemented a free trade agreement in 1989, the U.S. share of the Canadian apparel market grew sharply. During the same time period, however, the U.S. share of the Mexican market dropped following liberalization of Mexican import barriers.
Exports of U.S. clothing have been growing rapidly to Eastern Europe and China, where demand is increasing for upscale goods, status symbols, and Western looks. U.S. manufacturers and retailers that are able to take advantage of opportunities in these countries should experience a surge in their exports. Exports of apparel to the Caribbean Basin countries have also advanced sharply in recent years, particularly to the Dominican Republic and Costa Rica. U.S. apparel manufacturers and retailers should also continue to take advantage of export opportunities in countries such as Japan, Canada, and Mexico, where trade barriers have been reduced.

TRADE MAGAZINES AND NETWORKS
These trade journals and sites usually include industry news, trade show/event calendar, recent articles, and searchable archive of articles, buyers guide/directory, and job listings.

MAGIC International, a subsidiary of Advanstar Communications, Inc., is the world’s largest and most widely recognized producer of trade shows for the apparel industry. The major designers and producers of America often attend these trade events. There is also a trade magazine called the Apparel Industry Magazine, which can also be accessed on the Internet. The magazine presents updated information about technology, fashion, and business, on the apparel Industry, and their webpage also features a Virtual Apparel Trade show. The American Apparel Producer’s Network (AAPN) also produces trade shows.
LABOR UNIONS
There are many labor unions associated with the apparel retail industry, such as the Fair Labor Association, the American Apparel Manufacturers Association, UNITE, an apparel’s workers’ union that represents apparel sewing employees with labor issues, the National Labor Relations Board (NLRB), the National Labor Committee(NLC), which is a coalition made up primarily of labor unions, and the National Retail Federation. These labor unions and government unions regulate fair labor practices in the apparel retail industry.
INDUSTRY TRENDS
Responding to fashion trends and consumer needs- The challenge for many apparel retailers is anticipating the coming trends and deciding how they will or won’t fit into the company’s image. In some cases, a trend might not be right for a specific retailer, and that’s where it has to work to stay as trend-right as possible without losing focus. Companies in this industry need to learn what their customers want, and be able to give them what they want, and that is one giant step towards success.
International Expansion – Another critical element for long-term success in this industry is global expansion. Companies have to be deliberate in international expansion and expand into countries where the greatest potential exists. In doing this, not only do they make a profit, but they make a name for themselves. Now the international part of the business is becoming more important to business as a whole. International expansion is certainly going to be the focus of growth for companies in the apparel retail industry. Increased Automation and Efficiency – In response to increased competition from new market participants, retailers are exercising a variety of strategies, including downsizing and restructuring, changing their merchandise mix, adding services, and adapting the quick response system for controlling inventory management costs.
Leveraging Apparel Brands – Many manufacturers and retail stores are beginning to leverage their products by licensing their brands for accessories such as sunglasses, watches, fragrances, wallets, and footwear. This strategy increases exposure for a well- known brand and can build consumer confidence in a specific brand.

Internet – The Internet is another tremendous advantage in this Industry. With the Internet, you can get updated and almost instantaneous information on things. Because many retailers have some of the best e-commerce Web sites in the business, that alone can help ensure global business. Internet sales can guide retailers into just the right international and domestic cities to build stores. It even allows a company to make its brand known internationally even before it has any physical presence in international markets. The Internet also provides for a great channel of feedback from consumers. That way, a company can better understand what will work and make changes immediately when a problem arises.
Awareness of demographic shift – As the nation’s largest age group, baby boomers are getting older, and the as the population growth rate remains at a record low, less than 1% this year, the industry is shifting its strategy to redirect their production and advertising toward this group. According to statistics, this is the group with the highest buying power. Thus, retailers and producers are grasping to this opportunity and are spending tremendous effort in trying to please them.
GOVERNMENT REGULATIONS
The retail apparel industry has benefited extremely as a protected industry of the United States since 1957. Protection means that the government limits foreign import of apparel through quotas and high tariffs. It is estimated in 1990 that protection of this industry, has cost the American consumers 21 billions dollars. In another word, consumers have to pay six times higher than what they would have to pay to protect this industry. Without this protection, the industry would have to face extreme foreign competition as raw materials and labor cost are much lower in the third world countries such as China, and Indonesia. Domestic production of the industry would go down by 11 billions dollars without such protection.

CHRONOLOGY
1900–1910: THE BEGINNINGS OF THE MASS MARKET
1900 The escalator enables stores to continuously move traffic to upper floors, and helps make multi-level department stores a standard for the century.
1911–1920: USING MACHINES TO GAIN EFFICIENCY
1911 NCR produces its 1 millionth cash register… The Computing-Tabulating-Recording Co. the forerunner of IBM, is incorporated.
1921–1930: THE RISE OF THE CHAIN STORE
1924 Air conditioning for comfort rather than to enhance manufacturing is first introduced at the J.L. Hudson department store in Detroit to keep women from fainting at bargain basement sales. Air conditioning later allows windowless stores and enclosed malls
1928 Farrington Manufacturing introduces the Charga-Plate system, made by Addressograph, the forerunner of the charge card. The embossed metal tag is used to print the customer’s name and address on a sales check.
1931–1940: VALUE AND PROGRESS THROUGH THE DEPRESSION
1935 Rural Electrification Act brings electricity, and later telephones, to rural America… IBM is selling more than three billion Hollerith cards a year for its tabulating machines, which are rented, never sold. It has 90% of this market.
1941–1960: THE AGE OF COMPUTING AND DATA PROCESSING BEGINS
1956 Southdale near Minneapolis becomes the first enclosed, two level shopping mall in America… IBM sells RAMAC, (Random Access Method of Accounting and Control), the first computer disk storage system… Eisenhower launches the interstate highway systems, speeding migration to the suburbs and displacing rail for many goods shipments
1961–1970: NEW FORMATS AND NEW TECHNIQUES
1962 Discounters appear: Kmart from Kresge, Woolco from Woolworth, Target from Dayton’s, and Wal-Mart Discount City from Sam Walton’s Ben Franklin variety store… Sears opens its first data center… IBM introduces Wholesale IMPACT (Inventory Program and Control Techniques), an automated replenishment system (and the forerunner of INFOREM) that uses statistics and a smoothing algorithm rather than a min/max system.
1990 – PRESENT: MAJOR INVENTIONS AND LABOR ISSUES
1993 Invention of the Internet. The retail industry went online!
1996 – More than 300 fashion industry representatives — including retailers, manufacturers, designers, workers, labor, consumer advocates, and celebrity endorsers — participate in a Forum to discuss the challenges embodied in eradicating sweatshops and the importance of working together to identify and implement solutions.
1997 Creation of the Workplace Code of Conduct, and Principles of Monitoring by the Apparel Industry Partnership to ensure the elimination of sweatshops and certify that products are produced in compliance with the Fair Labor Association Standards.

1998 Invention of the security tags to attach on garment, a major prevention of theft.

1998 Walmart Sweatshops in Honduras – Labor Issues
1998 Liz Claiborne sweatshop production in El Salvador makes the news
1999 The Department of Labor announces the recovery of $247,000 in back wages for 138 workers of a Los Angeles area garment shop, Emeraldtex, Inc. The DOL investigation, which covered a 2-year period, was conducted by the rapid response unit established in the Fall of 1998. The shop assembles garments exclusively for Jowett Garment Factory, Inc. which provides clothes for a variety of retailers including Eddie Bauer, The North Face, Reebok, Jones New York and The Gap. Emeraldtex, Inc, also fined $20,000 for willful violations, signed a consent judgment stipulating future compliance.

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