Children’s apparel sales this year are forecast to continue as a bright spot for fashion retailers, but sales are expected to progressively slow with the rest of the economy.
As a result, vendors are under even more pressure from their retail clients to keep prices in check. At the same time, stores are looking to expand the money-saving practice of creating their own kids’ fashion labels to compete with brand names, according to vendors and industry analysts.
“You have retail matrices you’re up against,” said Susan Lizan, president and design director of Betsy & Babs, the kids’ wear division of Against Gravity Apparel Inc. “The stores want to have a core group of vendors they are doing business with. It’s a different type of retail market than years ago, when stores were more apt to give you a test, a shot, but those days are gone.”
Like many apparel vendors with specialty and department store customers, Betsy & Babs sells both its own line and apparel produced for retailers’ private labels. Also increasingly common, the company ships new styles every 45 days, instead of once a season, to maintain customer — and retailer — interest.
The need to distinguish kids’ fashions is particularly important, considering the drastic consolidation that has taken place among fashion retailers in recent years. Over the last two decades, the roster of U.S. retailers selling infant-to-adolescent fashions has been drastically narrowed from 100 to just 47, according to Marshal Cohen, chief industry analyst with NPD Group.
At the same time, the number of kids’ fashion vendors selling to stores has remained constant at 1,000. All the while, the amount of private label apparel sold by retailers has increased to 50 percent from 25 percent since the mid-Seventies, Cohen said.
On an annual basis, Cohen expects 2006 kids’ apparel sales to increase 6 percent to $28.5 billion. For the year ending June 2006, all children’s apparel sales — infants’ to teens — were up 7.2 percent from 2005, according to NPD Group.
Last year, infants’ and toddlers’ apparel sales alone
increased 4.3 percent, to $12.2 billion, after advancing 4.1 percent in 2005. This year, sales are expected to show a 4.5 percent gain, thanks to strong returns in the first half of the year, said Mary Brett Whitfield, a senior vice president for consultants Retail Forward in Columbus, Ohio.
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However, for the balance of this year and over the next four years, growth is expected to slow to between 3.3 percent and 3.5 percent, Retail Forward forecasts.
Another piece of the children’s apparel business equation will be an acceleration of price deflation, which is occurring across all apparel categories, Whitfield said. This year retail prices for infants’ and toddlers’ apparel are forecast to dip 1.5 percent, the same as 2005. Between 2007 and 2010, Retail Forward forecasts prices to fall around 3 percent annually, which Whitfield said would be driven largely by increases in the volume of lower-price imported apparel.
Like other products, children’s apparel will have to compete even harder for consumer dollars in an economy where customers face high gasoline and home energy costs, as well as increases in credit card and home equity debt due to higher interest rates.
In the second quarter of the year, the nation’s economy grew a tempered 2.5 percent after a January-March surge of 5.6 percent, as measured by the Gross Domestic Product, the calculation of the value of goods and services. That’s significant, since consumer spending comprises two-thirds of GDP. Slower economic growth is forecast by analysts to continue for the balance of the year, in the 2 to 3 percent range.
With increased price sensitivity among consumers, shopping for children’s
apparel becomes “all about brands and styles at very favorable prices. That’s the model when dollars get tough,” Cohen said.
Another factor for kids’ wear makers to take into account is the growing desire by children, even as toddlers, for their clothes to reflect their own tastes and not their parents’.
In particular, NPD’s Cohen said kids increasingly want a look that reflects their fascination with sports, movies and music — and their associated idols. Falling into this category is teen idol Britney Spears, who in early August expressed interest in designing children’s wear under actor Charlie Sheen’s Sheen Kidz label.
J.C. Penney in July introduced a tween-to-teen boys’ apparel line tied to cable channel ESPN’s X Games, featuring “extreme” skateboarding, surfing and other sports events. The clothing includes logo T-shirts, camouflage cargo pants and hoodies in distressed fabrics with “streetwear style” graphics,
according to the Plano, Tex., retailer.
Cohen puts J.C. Penney on the list of retailers effectively plugging into children’s tastes, citing solid sales of its children’s apparel, which led all merchandise categories in boosting its June earnings by 4.3 percent, far surpassing analysts’ expectations.
But, Penney’s is also preparing for the economic slowdown. “While we are entering the back-to-school season with some momentum, we believe it’s prudent to continue to plan cautiously in light of increases in gas prices and interest rates versus last year,” said Ed Merritt of J.C. Penney investor relations, in a recorded news release.
In response to leaner economic times, shoppers are likely to turn more to “value” retailers, said Whitfield of Retail Forward. She noted that a recent survey of 4,000 households found that the first choice of shoppers looking for infants’ and toddlers’ apparel was discount stores and super centers.
As is typical in most of its permutations, the luxury market will be insulated from economic swings in children’s apparel, according to analysts and industry officials.
Such is the case with Petit Patapon of Portugal. The company, with 120 licensed stores worldwide, began selling its infants’, girls’ and boys’ vintage-inspired apparel in the U.S. six years ago at Barneys New York.
Petit Patapon’s U.S. presence has grown by three licensed stores, but in the last year the pace of expansion has picked up, thanks to Internet inquiries from specialty retailers and sales reps, said Lisa Berke, U.S. director of operations. “You can’t ignore the e-mails,” said Berke. The company has since added 85 clients — stores in the market for things like Petit Patapon’s mauve and cream long-sleeved smock dress with ruffled hem for $94 retail, or the $59 pink-stitched swirly denim skirt.
Berke said there has been some resistance to the line’s higher prices by potential wholesale customers, but the devaluation of the U.S. dollar against the strengthening euro has created little leeway to negotiate. “Right now, it’s harder for us to come down in price because of the exchange rate. But the quality is so good,” said Berke.
The sales pitch and business dilemma are similar for Keedo, a South African brand of colorful girls’ clothing, which offers a three-piece Tam Tam set consisting of a Lycra spandex top, muslin ankle-length pants and crushed muslin tunic wholesaling for $39.50 to $42. There are now eight Keedo licensed stores in the U.S. and 35 boutiques selling the line.
Kim Kahn, who runs the U.S. Keedo operation, said lower prices driven by imported garments from the Far East have added competitive pressures.
“As a result, brands like Keedo, which is made in South Africa, where employees are paid a living wage, are feeling margin compression as we try to stay competitive,” Kahn said. “We find that many of our customers value these attributes and appreciate that we are not a mass-manufactured brand.”