USA – a full recovery is yet to come

The retail market in the United States, including that of fashion and accessories, is recovering step by step, while analyses and figures still project negative prospects owing to the downturn. The recession is not yet over.

An overview of social and economic environment

After a dreadful year for the economy, the world is observing every move of the US government and how the economic and social conditions of the country adjust to get to a better situation. Despite a few favourable signs, general consumer confidence is still low, which has led to a drop in sales in the consumer market, including fashion and accessories. Consumer spending accounts for two-thirds of economic activity in the US. It is therefore important to comprehend the general employment and earnings situation of the average American citizen in order to better estimate his or her spending ability.

According to the US Department of Labor, from July 2008 to July 2009, seasonally adjusted average weekly earnings of Americans rose by 1%, from US$607.27 to US$612.87. The Obama administration saw a glimmer of hope after the release of the employment figures for July. Although non-farm payroll employment continued to decline in that month, with 247,000 employees being laid off, with the unemployment rate at 9.4%, or 14.5 million people, the overall layoff figure is already half the level in previous months. The average monthly job loss for May to July (331,000) was also about half the average loss for the period November 2008 to April (645,000).

Thus we can see that the general domestic employment situation is improving slightly in several aspects, in turn favouring consumer activity. However, the delayed effect will probably not be seen until 2010 or even 2011. An earlier study carried out by BDO Seidman, business adviser to retail and consumer product companies, shed some light on the current fears and situation in the retail market. It cited 100 big retailers in the US and summarised the risk factors retailers face in getting business in 2009.

Thus we can see that the general domestic employment situation is improving slightly in several aspects, in turn favouring consumer activity. However, the delayed effect will probably not be seen until 2010 or even 2011. An earlier study carried out by BDO Seidman, business adviser to retail and consumer product companies, shed some light on the current fears and situation in the retail market. It cited 100 big retailers in the US and summarised the risk factors retailers face in getting business in 2009.

In the study, the general economic situation is given by 96% of the retailers surveyed as being the biggest risk to their business, up to number one from number two in 2008. This is because of the financial market, oil and energy, unemployment, interest rates, inflation/deflation and the housing market. And 93% are worried about the credit market and the availability of financing and company indebtedness, up abruptly from number 11 to number two. "When consumers stop spending and retail sales fall, banks become increasingly concerned about lending to retailers," said Doug Hart, a partner in retail and consumer product practice at BDO Seidman.

Back-to-school, general sales figures and their implications

Disregarding the slightly improved employment figures, the unexpected drop in retail sales in July after two consecutive months of gains not only disappointed government and experts but also implied a relatively unstable situation in the recent recovery process.

The Commerce Department released figures showing a decline in total retail sales of 0.1% in July, compared with June's revised gain of 0.8%. Sales at clothing and clothing accessories stores increased by a slight 0.6% adjusted month to month but decreased by 7.2% unadjusted year on year. In the US, the biggest consuming period apart from the winter holidays is the back-to-school/college period, when school and college students purchase en masse apparel and accessories, bags, shoes, dormitory products, stationery and electronic devices for the new term/semester. According to the National Retail Federation (NRF), its latest Back-to-School/College Consumer Intentions and Actions survey, conducted by BIGresearch and released in August, showed that the average American family had completed only about 41% of its back-to-school and college shopping as of August 11. What is more, nearly one-third (30.5%) of families with school-aged children (K-12) hadn't even started their shopping. "The days of mum or dad letting children put whatever they want in the shopping cart are over," said Pam Goodfellow, senior analyst, strategic initiatives, BIGresearch.

The survey also found that six out of ten American families who still had shopping to do would head for a discount store, followed by over 40% and 30% who would go to a department store and a clothing store respectively.

Only one-fifth of college shoppers, even fewer than was the case with shoppers for school, said they had completed their shopping. According to the survey, 41.9% of families with students already in or planning to attend college had not even started shopping, while sales and promotions influenced the buying decisions of 40.8% of college shoppers.

"Price is an important factor when it comes to back-to-school shopping, but there are other aspects to consider," said Mike Gatti, executive director of the Retail Advertising and Marketing Association, a division of NRF. "Unique and creative marketing campaigns coupled with the right prices will be the key to driving sales as the summer comes to a close."

Retailing strategies for the young market

Despite the not very encouraging survey figures, fashion and accessory retailers are using various ways to appeal to young shoppers who rely financially on their parents.

Candie's, a junior fashion and accessory brand, continues for a second season its partnership with pop singer Britney Spears for its back-to-school campaign. Its autumn apparel, footwear, jewellery and accessories are available exclusively at Kohl's Department Stores. The pop queen is featured in posters and TV commercials, and she was sponsored for one of her music videos, in which she is dressed from head to toe in Candie's fashion gear. Facebook and Twitter, the hottest social media for school and university students, have been employed by Candie's as powerful free promotion platforms. JC Penney, one of the top home and fashion retailers in the US, and off-price retailer TJ Maxx also launched their first Facebook and Twitter pages earlier this year. Kohl's total sales for July 2009 increased 5.2% from 2008, while comparable store sales increased 0.4%.

Kevin Mansell, president and chief executive officer, commented that the store achieved a double-digit comparable store sales increase in the southwest region and strong comparable store sales increases in accessories, home and footwear business.

And for TJ Maxx, it presented in early August a charity campaign in collaboration with Save the Children. Customers who purchased a limited edition reusable shopping bag could help children in need in the US. For each bag purchased, TJ Maxx donated one basic item, such as socks, underwear and backpacks, to Save the Children's US Programmes. The total July 2009 sales of TJX Companies Inc, mother company of TJ Maxx, enjoyed a 5% rise. For JC Penney, total company sales in July decreased 10.6%. Sales during the month were impacted by a combination of a later start to the back-to-school selling period and the shift of several state tax-free shopping periods into this year's fiscal August, as well as by lower levels of inventory clearance relative to last year.

Women's apparel and women's accessories were the top-performing merchandise divisions in July. Children's apparel was the weakest performer. The southwest region was the best-performing region in July, while the southeast region had the softest sales performance during the month. The company opened five new stores at the end of July, including its first-ever department store in Manhattan.

The July 2009 net retail sales of Target, the fifth biggest mass retailer in the country, were US$4,418 million, a decrease of 3.2% from US$4,566 million in 2008. On this same basis, July comparable store sales decreased 6.5%. "July comparable store sales performance was in line with our expectations for the month," said chairman, president and chief executive officer, Gregg Steinhafel. He mentioned that while sales remain challenging, the company will continue to experience favourable gross margin performance within categories and disciplined expense control in its retail segment, as well as modestly improving risk trends in its credit card segment.

High-end department stores Nordstrom and Macy's also recorded drops in sales for July 2009 of 6.9% and 10.7% respectively. Next come the winter holidays, the most important spending period in the US. Whether the sales this year will meet expectations is still to be assessed.

Source: Asia's Fashion Jewellery & Accessories Review