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RETAIL ROUNDUP

Off-price Channel Continues to Gain Ground Ceded by Department Stores

With the back-to-school retail season in full swing and the holidays just around the corner, there’s mounting evidence that the licensed product distribution trends highlighted in TLL Annual Licensing Business Survey—including the growth of the dollar/value/off-price channel and the decline of department/mid-tier stores are picking up steam in 2016.

Off-price retailers will continue to take share from department stores, Moody’s Investors Service believes. “We expect off-price sector revenue to grow by 6% to 8% for the next five years, outperforming the broader apparel sector by a collective 4 percent,” Moody’s analyst Christina Boni told Women’s Wear Daily last week. Moody’s expects that dominant off-price retailers – including TJX Cos., Ross Stores, Burlington Coat Factory and Nordstrom Rack will account for 10% of apparel sales by 2018, up from 8.8% currently.   

Meanwhile, department store giant Macy’s announced last week that it will close 100 full-line stores by early 2017, following 41 closures in 2015. The news came amid moves by accessible luxury brands Coach and Michael Kors to reduce their presence in department stores such as Macy’s as both brands complained that the hefty discounting now common at department stores has cut into margins and their perceived cachet with customers. They prefer to sell through higher-end stores, their own specialty doors and in the ecommerce channel increasingly favored by fashion shoppers. Other fashion brands including Fossil and Ralph Lauren also continue to warn of continued traffic challenges at department stores and to re-evaluate their brand presence in the channel.

Other on-trend retail developments, by channel:  

Dollar/Value/Off-Price

This channel accounted for 9.2% of all retail sales of licensed products in the U.S. and Canada in 2015, growing 0.4 percentage points, or 4.5% last year.

  • Off-price arm Nordstrom Rack seriously outperformed Nordstrom’s full-line business in the second quarter, with sales for all Rack operations up 11.2% and comps rising 5.3%, while full-line store and online sales were flat, with comps down 2.3%.  Nordstrom will open the first of 15 planned Rack stores in Canada by 2018 and will open an additional 15 U.S. stores this fall on its way to a goal of near 300 stores by 2020.
  • Dollar General in late July bought 40 of Walmart’s castoff Walmart Express stores, a failed experiment by the retail behemoth to compete with dollar stores, and will convert them to Dollar General by the fall.

Department Stores/Mid-Tier

This channel accounted for 12.2% of all retail sales of licensed products in the U.S. and Canada in 2015, a decrease of 0.4 percentage points, or 3.2% from 2014.

  • Kohl’s exceeded analysts’ earnings expectations for the second quarter by keeping tight control of inventory, but its comps were down 1.8% for the quarter and 2.8% for the half, due to a 5% plunge in customer traffic. It subsequently cut its profit outlook for the year.  The chain is investing significantly in the active and wellness sector, which now accounts for 14% of its business and this year is rolling out the Under Armour brand chainwide.  As popular as UA is, its retail doors trail Nike by half – the Kohl’s deal could give it traction with female shoppers.

Discount/Mass

This channel accounted for a massive and stable 32.0% of all retail sales of licensed products in the U.S. and Canada in 2015, up one-tenth of one percentage point, or 0.3% from a year earlier.

  • Target, seeking to goose sales growth rates below 2%, is experimenting with smaller format stores and will roll out a couple dozen more of the small and flexible format locations this year, in places including Cupertino, Calif., and Brooklyn, N.Y.
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