Men's Apparel Retailers
Date February 2020
- Deal Notes: Gordon Brothers has seen recent consolidation of mom/pop menswear stores as smaller formats struggle to complete with Amazon and national retailers
- Retailers Madewell, Lululemon, and Macy’s focus on menswear initiatives
- Tailored Brands announced the sale of its men’s’ brand Joseph Abboud to WHP Global for $115.0 million
- Baby-boomer retirements have negatively affected demand for men’s suiting and business casual attire since 2011 as the oldest members turned 65
Approximate net recovery on cost
Mixed holiday results and industry outlook: Despite all four banners generating positive sales for the third quarter of 2018, industry leader Tailored Brands struggled with negative comparable (comp) store sales for the holiday period driven by a decrease of 3.6 percent for its Men’s Wearhouse banner. The company’s major competitor in the big and tall space, Destination XL, managed to perform well for both periods, with Q3 comp sales up 3.4 percent, followed by an increase of 3.6 percent for the nine-week holiday period ended January 5, 2019. Up against fierce competition for every dollar spent, the men’s specialty apparel industry continues to find growing competition from online retailers and discount stores.
Revenue for the Men’s Clothing Stores industry has decreased over the past five years at an annual rate of -1.6 percent. Looking ahead, the industry is expected to contract even more rapidly over the next five years at an annualized rate of negative 2.7 percent, with a projected decline of 2.8 percent in 2019 alone. The decline will be driven by an increase in online purchases, as well as demographic changes including the retirement of the older generation of baby boomers, further limiting revenue from that group.
Rising competition from discount retailers will continue to pressure the industry as well. Positive factors keeping the industry from declining even more quickly include the overall positive state of the economy and a forecasted increase in per capita disposable income, which are expected to help the industry at least in the near term.
The success of online retail: Digital retail continues to grow across all sectors, with e-commerce sales comprising almost 10 percent of total sales for 2018, a figure that has steadily grown since 1999. For Destination XL, e-commerce sales for Q3 2018, which included the company’s sales through Amazon, increased to $21.6 million, representing over 20 percent of company revenue. Although Tailored Brands does not report its e-commerce sales separately, the company’s digital strategy looks to increase conversions by connecting online shoppers with in-store sales associates in real time based on reporting from Creditntell.
Online competitors like UNTUCKit and MTailor have also begun claiming market share from traditional menswear retailers. MTailor claims to have eliminated the hassle of getting fitted for suits, jeans, and shirts by creating custom fit clothing at competitive price points. Using the company’s app, customers scan for their measurements with their phone, and then customize designs and fabrications from a variety of shirt, suit, and jeans styles online. Customized orders are then delivered in approximately two to three weeks. UNTUCKit, which has seen huge growth in its casual (untucked) shirt business since its start in 2010, recently expanded into brick-and-mortar locations, and now has 50 stores across the country.
The athleisure trend contiinues: The increasing popularity of athleisure wear has influenced both men’s and women’s apparel over the past year. As companies move away from business dress codes and more companies expand their remote work policies, menswear trends continue to favor the casual.
Lululemon, Mack Weldon, Brooks Brothers and others all now offer tailored fit, “dressy” sweatpant options that allow men to look pulled together, yet remain comfortable. Mack Weldon encourages its customers to “give your sweats a grown-up makeover” and offer a lightweight sanded French terry fabric that has a “smooth finish and sophisticated look that feels as good on the couch as it does around town.”
In terms of gross recovery values, the increase in demand for casual men’s clothing to suit changing life and work styles could mean that tailored shirts, dress pants, and suiting would recover less in a liquidation due to a dwindling customer base for those products. It is important for lenders to partner with appraisers on an ongoing basis to understand where there may be depth of inventory in less popular styles in order to correctly assess potential compromises in recovery value.
Specialty menswear businesses gain momentum: Coming into 2019, the five-year annual growth rate for retail menswear was trending down 2.3 percent based on information from research firm IBISWorld. However, with unemployment at historical lows, rising disposable income, and positive consumer confidence, there are some positive indicators for the menswear industry to improve in the near term. Based on recent initiatives by specialty retailers and department stores, menswear is a focal point for 2020.
For Macy’s, a renewed focus on menswear began in the fall of 2019 when the company unveiled a new men’s section called the Park at its flagship Herald Square location in New York City. Management noted that the plan is to roll out the redesign to Macy’s other flagships in the future. The Park is a 4,500-square-foot section that features a curated collection of on-trend men’s designer fashion including apparel, accessories, and footwear.
Similar menswear-focused initiatives were launched in 2019 by Madewell and Lululemon as they look to focus new energy behind men’s fashion. In the fall Madewell opened its first pop-up shop dedicated entirely to menswear in Brooklyn, New York. Men’s shop-in-shops were also opened in the company’s New York City, Philadelphia, Boston, Washington D.C., Los Angeles, and Charleston stores, as the company looks to invest in a menswear strategy that has been years in the making. Madewell management noted that, before its men’s line launched, the company had spent a few years researching and determining what a potential customer of Madewell men’s would want, landing on its signature denim as the first category to launch. In addition to denim jeans and jackets, Madewell’s men’s collection currently features a range of casual pants, tees, woven and flannel shirts, sweaters, outerwear, shorts, and swimwear.
As part of its five-year plan, Lululemon expects to double its men’s business by 2023. In support of the company’s progress to date, CEO Calvin McDonald cited the company’s 38 percent revenue growth in its men’s business for the quarter ended November 3, 2019. Representing the largest increase of the year, he added that the company’s men’s segment “continues to be very strong.” Sales of outerwear, pants, second layers, and underwear in particular drove increases in the company’s comparable sales for men’s apparel for the quarter.
In terms of gross recovery values, the increase in demand for casual men’s clothing to suit changing life and work styles could mean that tailored shirts, dress pants, and suiting would recover less in a liquidation because of a dwindling customer base for these products. It is important for lenders to partner with appraisers on an ongoing basis to understand where there may be depth of inventory in less popular styles in order to correctly assess potential compromises in recovery values.
Menswear outlook: Low unemployment and interest rates, rising wage growth, and a forecasted increase in per capita disposable income should help offset what would have been a large decline for the men’s retail clothing industry over the next five years. Nevertheless, research firm IBISWorld projects a contraction of 2.0 percent in 2020 as part of an annualized rate decrease of 3.2 percent through 2024. The decrease is largely driven by increased competition from online and discount retailers. In particular, Gordon Brothers has seen recent consolidation of “mom and pop” menswear stores as smaller formats struggle to complete with Amazon and national retailers. Additionally, as of 2019, the baby-boomer generation numbered approximately 73 million, almost half (47 percent) of which are already in retirement. By 2030, the entire demographic will be at least age 65. The ongoing wave of retirements by this group has negatively affected demand for men’s suiting and business casual attire since 2011. Further, increasing consumer debt, decelerating gross domestic product growth, and ongoing trade issues with China will be obstacles for this contracting industry to contend with in 2020.
As baby boomers retire, millennials will moving into the forefront. Millennials are predicted to comprise half of the American workforce in 2020 and 75 percent of the global workforce by 2025 according to Inc. magazine. Compared to previous generations, millennials have a greater awareness of the environment and social issues and, as a result, are more inclined to purchase second-hand and sustainable apparel. Many are moving toward a buy it for life (BIFL) approach, placing a greater value on durability than quantity. The desire for high-quality, durable goods can be seen on websites such as Reddit, which as of February 2020 had almost 700,000 subscribers to its BIFL subreddit.
For the 2019 holiday season, total apparel sales increased 1.0 percent year-over-year and were supported by 17.0 percent e-commerce growth, according to data from MasterCard Spending Pulse. Ongoing tariffs on Chinese goods compounded issues for some retailers that were forced to stock up on inventory in advance of the September 1, 2019, increase from 10 to 15 percent on approximately $112 billion of Chinese imports, including clothing and accessories. It should be noted that, as part of the phase-one China trade deal signed on January 15, 2020, the United States agreed to cut tariffs from 15 percent to 7.5 percent in exchange for an agreement from China to purchase more American products.
Looking ahead, a continued focus on omni-channel development, discounted pricing, and faster fulfillment and delivery services will be essential for retailers to compete in the coming year. In addition to offering exceptional customer service, retailers with brick-and-mortar locations must continue to develop their digital strategies, including sophisticated shopping apps and buy-online-pick-up-in-store capabilities or risk being outperformed by competitors.
Note: This publication is provided for informational marketing purposes only. The material contained herein should not be regarded as advice, nor relied upon to make financial, operational or other decisions; nor should it be used as a substitute for an asset appraisal. Actual recovery values may vary from transaction to transaction and the recovery values referenced herein are for representative transactions without regard to specific key factors. This material may be redistributed only in its entirety, including notice of copyright. All rights reserved. ©2020 Gordon Brothers, LLC.
Reference sources: u.S. census Bureau, ama.org, reddit.com, inc.com, madewell.com, lululemon.com, glossy.com, retail dive, bizjournals.com, creditntell, ibisworld