As Online Apparel Sales Bounce Back, Overall Retail Outlook Remains Dim

By Arthur Zaczkiewicz on April 9, 2020

The good news was tempered by a dire outlook for all of retail from Fitch Ratings.

After weeks of steep declines, online sales of apparel and accessories have jumped into the black as consumer shifts from buying coronavirus-isolation-related essentials.

In an analysis of 27 billion page views, researchers at Contentsquare said traffic to U.S. fashion apparel sites soared 53 percent. And according to a database of transactions from more than 2,500 global brands by Emarsys in cooperation with GoodData, U.S. online revenue of fashion apparel and accessories rose 1 percent this week at retailers while pure-play e-tailers saw sales gain 20 percent in the category.

The gains follow a dire report today from Fitch Ratings. The company said it expects U.S. retail discretionary spending to be “adversely affected by the coronavirus pandemic, given significant business interruption caused by proactive or mandated closures of retail locations in nonessential categories and the increased likelihood of a downturn in discretionary spending that extends well into 2021.”

Last week, the ratings firm downgraded Dillard’s, Macy’s, Capri and Tapestry — all lowered to “non-investment grade.” In the first half of this year, Fitch Ratings sees retail discretionary spending falling 40 to 50 percent “with a slow rate of improvement expected through the summer from a current 80 to 90 percent decline in sales if stores start to open mid-May or early June.”

In the second half, Fitch Ratings sees retail sales showing a decline in the “mid-to-high-single digits” with sales in 2021 showing an 8 to 10 percent drop from 2019 levels. “Sales declines for the secularly challenged department stores are expected to be more material on a relative basis,” the company said in its report. “Revenue trends could improve exiting 2021, given the typical four- to six-quarter duration of a consumer downturn, resulting in 2022 being a growth year.”

The company also noted that J.C. Penney, which it described as a “market share donor,” is challenged with a “cash burn” that will threaten its liquidity position next year. Fitch Ratings also said J. Crew and Lands’ End “may be challenged in addressing sizable maturities due 2021, increasing default risk including via a distressed debt exchange.”

“J. Crew’s plan to monetize its Madewell business through an IPO could be difficult to execute in the near term given equity market volatility,” the ratings firm said. “Protracted weakness in sales and capital market conditions could also make it difficult for Tailored Brands, Ascena and Party City to address 2022 maturities.”

The dim outlook re-emphasizes the importance of successful e-commerce operations during the COVID-19 outbreak. And for pure-play retailers, this past week was a turning point.

According to the Emarsys/GoodData sales and transaction data, pure-play revenue jumped 37 percent this week while all of retail gained 15 percent. And while online fashion apparel and accessories sales soared by double-digits in the U.S. for pure-play e-tailers, the one percent gain for all of retail reveals that shoppers are taking advantage of steep markdowns and fire sales of apparel.

Looking at online traffic, Contentsquare said transactions to U.S. fashion sites has increased by 53 percent this week, transactions to retail tech sites increase by 7 percent while sports equipment transactions fall by 75 percent.” The latter category had been a robust segment as house-bound consumers purchased various equipment to stay fit in and around their homes.

“This week in the U.S., online retailers battled back after weeks of falling traffic and transactions recording 22 percent more transactions this week against the pre-coronavirus benchmark,” authors of the Contentsquare report said adding that the results demonstrate “that the sales online retailers have begun are starting to draw consumers out of their panic buying mentality and are willing to capitalize on a bargain.”

The company also said consumers are also making purchase decisions that relate to their “entertainment, work and comfort needs while constrained to their homes.” It noted that DIY sites recorded “17 percent more transactions this week compared to last, operating at an impressive 60 percent increase in transactions against the period before coronavirus hit.” Contentsquare also said retail tech “then saw a 7 percent rise in transactions this week, totaling 27 percent more transactions than before the crisis.”

Researchers said in their report that the results show that shoppers in the U.S. “are waking up to the reality of a lengthy isolation period, increasingly making preparations to work, exercise and live in a much more restricted fashion than before.”

In regard to what and where consumers are buying nonessential products, a separate report today from CGS said Amazon (and other online marketplaces) were the top destination for online apparel shopping followed by department stores and DTC brand sites.

“Everyday clothing” along with fitness and footwear were the top categories sought, CGS said in the report.

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