Apparel Spending Outpaced by Home Goods

NEW YORK — After a strong fashion cycle last spring that propelled sales, consumers have switched gears again and are spending less on apparel.

Deflationary pricing trends, a growing interest in consumer electronics, especially iPods and Nintendos, and a return to “nesting the home” are pulling dollars from apparel.

According to data from the U.S. Department of Commerce’s Bureau of Economic Analysis, real personal consumption expenditures on clothing and shoes, which include women’s and men’s apparel, experienced a 5 percent year-over-year gain in the third quarter. This compares with a 10 percent increase in spending on furniture and household goods and a 6.8 percent jump in fuel oil and coal expenditures.

According to Jay McIntosh, director of retail and consumer products for the Americas at Ernst & Young LLP, the shift in total consumer spending away from apparel over the past year is the result of several macroeconomic trends.

One big factor is deflation. “In apparel, you don’t have to spend as much [today] to buy what you did before,” McIntosh said in a recent interview.

Deflation, combined with the fact that consumers realized they could spend far less on apparel at discount retailers — as opposed to department stores — has also contributed to fewer apparel dollars being spent in 2004, he said. According to a Dec. 1 Standard & Poor’s report, consumers “are finding discounters’ wide aisles and large shopping areas more convenient and ‘shopper friendly.’”

Shopping at discounters for apparel is especially appealing from an economic standpoint as high energy prices tend to act as a tax on overall discretionary income, particularly for lower-income consumers.

Another reason for the decrease in spending on apparel is that electronics, for example, has seen much more innovation in the past few years than previously, thus wooing away consumers’ discretionary incomes. “Things like stain-resistant ties don’t compare with plasma TVs to get people to channel their money,” McIntosh said.

Indeed, the consumer electronics category is forecast to capture one of the largest shares of holiday-related gift spending this year, several analysts have projected.

Meanwhile, riding on the heels of mortgage refinancings — with which consumers used new-found loans to renovate or redecorate homes, frequently with the hippest consumer electronics — was the birth of the do-it-yourself phenomenon. Now more women are jumping on that bandwagon, which is a plus for home improvement retailers such as Home Depot and Lowe’s, but has a negative impact on apparel retailers, McIntosh said.

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Lastly, while the improved fashion cycle compared with the past year likely slowed the shift away from apparel spending in 2004, consumers still — and probably always will — want a bargain. “Even as people are turning to fashion, they’re continuing to move toward the value retailers,” said McIntosh. These are retailers such as Ross Stores or The TJX Cos., which operates the TJ Maxx and Marshall’s chains.

Meanwhile, consumers continue their lust for electronics. Take the two-screen Nintendo DS, which was launched on Nov. 21 in the U.S. and sells for $149.99. More than 500,000 units were sold in the first week of availability. That made up about 90 percent of all units available in stores across the U.S.

Craig Johnson, president of the New Canaan, Conn.-based retail consultancy Customer Growth Partners, called the successful launch of the Nintendo DS game platform one of the most important retail sector events since the Nineties.

But where the Nintendo DS could really affect apparel sales is when teen girls figure out they can pass notes to as many as 16 classmates and friends via the portable game’s wireless local area network, using a stylus to write text and draw pictures.

“That [writing and drawing] capability makes this a girl’s item as well as a boy’s. Otherwise, video games are 90 percent male. Once this gets into wider distribution, girls are going to start saying, ‘Hey this thing is sort of cool,’” Johnson said, calling it the first gender crossover of video gaming capabilities. 

Of course the other much-hyped portable electronic device attracting consumers attention is Apple Computer Inc.’s iPod music player, which is now being sold at traditional department stores such as Macy’s and Lord & Taylor. Recognizing the interest in personal electronics, the department stores are hoping consumers pick up an iPod or even a digital camera as stocking stuffers, along with a cashmere sweater or other “must have” holiday deals this year.

In fact, teens have begun to see the iPod as something of an apparel statement, apparently making deals with parents during the back-to-school shopping season this past summer to spend less on clothing in order to also buy an iPod. Of course, the rise in spending on consumer electronics likely won’t crimp spending on apparel altogether, especially if women have anything to say about it. At least as far as sportswear spending goes, women 13 years and older spent $39.4 billion in the latest year ended Aug. 31, an increase of 3 percent, according to recent data from Cambridge, Mass.-based STS Market Research.

Still, Art Spar, president of STS, noted in a recent interview: “The wardrobe is always fighting for its share of the wallet with electronics and leisure activities. And I think for many segments of the population, apparel is losing that share of the wallet.”