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Consumers plan to spend less on clothing, accessories: Analyst

by Paul Morgan

UBS Analysts: Consumers Cautious About Spending on Soft Goods

According to recent research conducted by UBS U.S. Softline and Luxury Analyst Jay Sole, consumers are becoming more cautious about their spending habits. The study revealed that many individuals are considering scaling back their expenditures on items like clothing and accessories. Sole states that this widespread slowdown in spending will impact all softline companies and is observed across all demographic groups.

One of the key reasons behind this caution is the inflationary environment that consumers are currently facing. Additionally, factors such as student loan repayments are causing individuals to rethink their discretionary spending on apparel, footwear, and accessories. The implications of this cautious behavior are expected to create headwinds for stock prices in the softline industry.

When discussing the specific companies that are likely to be most impacted, Sole mentions that it will affect the entire softline sector. This includes department stores, brands, off-price retailers, and mall-based retailers. The slowdown in spending is not limited to specific income groups but is seen across all income demographics. Given that clothing is a necessity for everyone, the impact will be felt by the industry as a whole.

In terms of the promotional activity, Sole believes that there will be an increase in promotions for two main reasons. Firstly, there is an excess amount of inventory due to lower-than-expected demand this year. This buildup of inventory will need to be cleared, leading to more discounts and promotions. Secondly, demand is projected to decrease even further, which will result in retailers needing to offer promotions in order to stimulate sales.

In Sole’s note, he highlights several companies with strong growth potential, such as Nike, On Holding, and Deckers. These companies have a go-it-alone strategy, which involves distributing their products directly to consumers through their own stores and websites, bypassing the traditional retail middleman. This approach allows these brands to increase profits and establish a more direct relationship with consumers.

Sole explains that companies like Nike have made significant investments in their direct-to-consumer business, enhancing their apps and online platforms to make the shopping experience more appealing for consumers. As the world reopened after the pandemic, there was a brief rebound in store traffic. However, during the recent back-to-school shopping season, online sales growth rates started to pick up again, indicating a shift back to online shopping. This trend aligns with the future direction of the industry, and it is one of the reasons UBS analysts are positive about companies that have embraced this go-it-alone strategy.

Overall, the research conducted by UBS reveals that consumer demand for soft goods is weakening, leading to a cautious approach to spending on clothing and accessories. This slowdown is expected to impact all softline companies, prompting retailers to offer more promotions and discounts to clear excess inventory. Companies with a strong direct-to-consumer strategy, like Nike, On Holding, and Deckers, are seen as well-positioned for success in the evolving retail landscape.

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