Men's Apparel Retailers
summary-date October 2016
Approximate net recovery on cost
- During the past 5 years, men’s clothing stores have averaged 3.1% growth whereas women’s retailers averaged a 0.5% decline in revenue. However, growth in the men’s sector is expected to slow during the next five years.
- Significant investments are being made to develop omni-channel retailing strategies across the sector. In addition, many stores have updated product offerings to better cater to younger shoppers, renewing emphasis on fit, versatility, and customization.
Store closures hit biggest player: The industry’s dominant player, Men’s Wearhouse, changed its name to Tailored Brands in 2016. Soon after, Tailored Brands made headlines when it announced it would close 250 stores to right-size its store base. Closures included select Jos. A. Bank full-line stores, along with all Jos. A. Bank and Men’s Wearhouse outlet stores, and 100 to 110 MW Tux stores. The brand most impacted by these closures was Jos. A. Bank; the closures represent about 20 percent of the brand’s locations. Jos. A. Bank has struggled since its acquisition by Men’s Wearhouse in 2014. To combat price erosion happening throughout the industry and bring the brand upmarket, Tailored Brands moved to end Jos. A. Bank’s buy-one-get-three-free promotions that made the brand famous, but consumers were not onboard with the change. This culminated in a $1.15 billion write-down of value on its balance sheet related to the purchase of Jos. A. Bank after dismal performance in 2015. Same-store sales continue to fall, declining 16 percent during the second quarter of 2016. Store closures are expected to stretch into 2017.
The majority of men’s apparel retailers compete on price. Increasing competition from department stores has been particularly robust, and these stores’ ability to deliver exclusive brand partnerships (such as Alfani at Macy’s) has attracted consumers. However, the largest competition in the industry is with online retailers. Amazon continues to try and position itself as a leading fashion house, launching seven in-house brands in 2016 including Franklin Tailored (men’s suits and accessories) and Franklin & Freeman (men’s dress shoes). Most of their clothing is priced under $100. While still just a fraction of apparel sales overall, Amazon is projected to triple its share of the U.S. apparel market over the next five years.
Despite industry challenges, specific retailers may not necessarily be subject to falling recovery values in a liquidation scenario. To the extent that retailers’ mix of branded goods and stock availability remains in line with customer demand, gross recovery rates could remain strong even if sales or gross margins decline slightly. Should a brick-and-mortar retailer begin a strategy of aggressive discounting to offset sales losses, the same cannot be said for changes in net recovery values. Partnering with an appraisal firm to understand the implication of excess discounting or significant loss of sales capacity due to a dwindling customer base becomes more critical as retailers face ongoing competition from e-commerce retailers while trying to manage increasing sourcing, manufacturing, and overhead costs.
The omnichannel imperative: Beyond growing their own online channels, retailers are investing in improving the in-store experience as well. But what works in a women’s store can be quite different than what works in men’s. For example, Carhartt, which has a well-established primarily male clientele, now offers interactive kiosks and touchscreens at its flagship Dearborn, Michigan store so that shoppers can easy view product details, styles, and colors. For most men, offering an efficient shopping experience is the goal. Shoppers want similar products grouped together, clear signage, ample product information, and practical recommendations that help them to get in and out of stores quickly, whereas many female shoppers prefer to “discover” fashion.
The exploration of how omnichannel shopping can evolve differently for men and women is only beginning. Successful retailers will need to consider the buyer’s entire journey, from the mobile phone to the fitting room. At a minimum, stores nowadays are expected to have in-stock products viewed online, consistency between pricing online and in the store, and free doorstep shipping on products out-of-stock in stores. Understanding how e-commerce expectations impact buying behavior is important when valuing inventory.
Amidst this changing landscape, some retailers are rethinking storefronts entirely. In November, Kenneth Cole Productions announced it would close almost all of its stores, leaving just two full-priced locations in the U.S. The closures of the 63 outlet stores will occur during the next six months. But this doesn’t mean it’s going out of business. Rather, the company is repositioning itself to focus on its e-commerce site and international business while continuing to sell merchandise through other retailers.
Big-and-tall is growing: For many years, retailers struggled to figure out how best to cater to the big-and-tall market with only moderate success. The wide range in sizes needed to accommodate consumers was an inventory management challenge. Instead, stores would carry only a limited range of larger sizes, leaving a large swath of customers underserved. In 2012, Casual Male announced it would close down nearly all of its stores and would open DXL, or Destination XL, stores in their place. These stores would focus on big-and-tall shoppers of all sizes, which meant investing in sophisticated planning and allocation systems to manage the numerous SKUs needed to fully serve the market.
The larger DXL stores offer spacious dressing rooms, wider aisles, and a greater assortment of sizes, which has resulted in more spending per visit. This risky bet has so far paid off. Revenues for 2015 were up 6.8 percent to $442.2 million, and the company plans to continue its transformation converting more than 100 more Casual Male locations in the coming years. DXL’s growth has been a bright spot amongst men’s clothing retailers.
Despite the increase in demand for plus-sized clothing, in terms of gross recovery values, often sizes at either extreme of the range (whether petite, extra small or plus-sized) can have a lower gross recovery due to a smaller corresponding customer base. It is important for lenders to partner with appraisers to understand where there may be depth of inventory in less popular sizes in order to correctly assess potential compromises in recovery values on an ongoing basis.