Clothing Stores
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Industry Overview
The US retail clothing industry includes about 40,000 companies that operate 90,000 stores with combined annual revenue of $130 billion. Large companies include Gap, Limited Brands, Talbots, and Abercrombie & Fitch. The industry is concentrated: the 50 largest companies operate 30,000 stores and account for 65 percent of industry revenue. Most companies operate a single store. An average store has $2 million in annual revenue.
Competitive Landscape
Demand for clothing is strongly influenced by the growth of personal income. During the last recession, same-store sales fell 20 percent at Abercrombie and at Gap. Profitability depends heavily on correct merchandising (product selection) and marketing. Small stores can compete very effectively with large ones by targeting different customers. The industry is labor-intensive: annual revenue per worker is about $110,000. In addition to traditional competition from department stores, new competition in recent years has come from mass merchants like Wal-Mart and catalog and Internet retailers.
Products, Operations & Technology
Although about 20,000 clothing stores sell products for all members of the family, most specialize in men's, women's, or children's clothes. Within their specialty, stores typically sell a full range of items including clothing, outerwear, and underwear. Many stores also sell shoes, handbags, jewelry, makeup, and perfumes.
Merchandising (product selection) is the most important activity for clothing stores. Stores usually target products at a particular type of buyer, determined both by style and price. Style is often defined by the branded merchandise (like Calvin Klein, DKNY, Ann Taylor, Gap, etc.) that the store carries. Some large chains like Gap, The Limited, and J Crew carry mainly (or only) their own brands, designed to reflect a particular lifestyle. Individual stores and smaller chains may feature their own private brands but also carry clothes with a variety of outside brands. Within a category of clothes (like sweaters or pants), stores usually carry items with a range of prices ("price points").
Most companies have a staff of buyers who make merchandising decisions. New products are introduced by brand representatives or at seasonal meetings with major vendors. Trade shows are an important source of information about new fashions.
Although some chains like Jones Apparel have a manufacturing arm that makes their own brands, most stores buy product from independent manufacturers. Even large chains like Gap that design their own products typically have clothes made by outside vendors. A chain or store may deal with 100 to 200 vendors. There are generally no long-term contracts with manufacturers. Chains usually have product delivered to a central distribution facility, from which they deliver to their stores using their own fleet of trucks or outside carriers.
Store sizes vary greatly. Boutique stores may be smaller than 2,000 square feet; a large urban store may be 50,000; a typical mall-based store is about 7,000. Usually 80 percent of a store's total area is sales space. Companies pay close attention to the volume of annual sales per square foot of sales space. Average sales per square foot vary annually, although in recent years were around $600 at Limited Brand's chain Victoria's Secret; $400 for Gap and Abercrombie; and $275 at S&K Famous Brands.
Selling clothes is labor-intensive. Sales per employee are about$90,000 per year at women's clothing stores. Because of uneven demand during the day, week, and year, many companies use part-time employees. J Crew’s part-time employees accounted for 60 percent of its workforce as of 2006. The two major clothes selling seasons are spring and fall. Stores place orders with manufacturers well ahead of time, build inventory in anticipation of these seasons, and replenish inventory as product is sold. Most stores use bar-coded tags on clothing and point-of-sale registers that allow precise tracking of items that are sold. With this information, chains can automatically replenish inventory at individual stores and can identify popular items. Many companies communicate with their major vendors using electronic data interchange (EDI).