Women's Apparel And Accessories Industry: Off-Price Retailers Taking The Share Away From High-End Retailers

by: Arsalan Mohiuddin


Surging unemployment and decreasing per capital disposable income pushed consumer sentiment and demand for discretionary products down.

Industry-wide factors and customer preferences have made revenues, gross margins and operating margins decline for most high-end retailers and increase for most off-price retailers.

Investors are better off focusing on off-price retailers.

As surging unemployment and decreasing per capital disposable income pushed consumer sentiment down during recession, demand for consumer discretionary products and services has declined, including that for women's apparel and accessories. In women's apparel and accessories industry, sales and margins for a many retailers have consistently declined for the past three years and the players have been struggling to keep their market shares.

The industry is characterized by high competition, low-barriers to entry, and a high promotional nature.

In the last three years, off-price retailers [like Ross Stores Inc. (NASDAQ:ROSS), TJX Companies Inc. (NYSE:TJX) and Cato Corp (NYSE:CATO)], who offer prices lower than traditional specialty retailers and designers, have fared better than top-line brands [like Bebe Stores Inc. (NASDAQ:BEBE), Aeropostale Inc. (NYSE:ARO) and Cache Inc. (OTCMKTS:CACHQ)], who design and directly source their manufacturing from international markets. The difference has been in core drivers of the business, i.e. revenue growth, gross margin and operating margins.

High-end retailers which directly source manufacturing internationally:

Revenues growth (3 year average)

Gross margin

Operating Margin

















Off-price sellers which procure manufactured goods:

Revenues growth (3 year average)

Gross margin

Operating Margin

















High-end retailers' sales have been declining and off-price retailers' sales have been in an uptrend for the past three years as customers have become more cost-conscious due to declines in average disposable income.

Off-price retailers have also been able to extract better margins than high-end retailers. As far as gross margins are concerned, this has been because off-price retailers enjoy less cost of sales because they procure finished goods from independent contractors and suppliers who, in-turn, contracts with manufacturing factories. Keeping quality control checks along the process, off-price retailers brand the items before selling them to customers through stores. On the other hand, high-end retailers employ local design teams and get the products directly manufactured from contractors in developing markets. This exposes them to exchange rate fluctuations, changes in international trade relations among countries and reliance on key international suppliers.

As far as operating margins are concerned, off-price retailers are faring better because they get to spend less than high-end retailers on non-occupancy costs, store-level overhead, marketing and advertising costs. On the other hand, high-end retailers brand objectives are part of their business strategies. They constantly engage their customers across different channels and elevate brand awareness and customer acquisition through increased marketing and advertising expenses.

The key trends affecting the competitive environment in women's apparel and accessories industry have put high-end retailers at a disadvantage as compared with off-price retailers. I think that in the next one to three years, investors looking for exposure to this industry are likely to benefit more from investing in off-price retailers' stocks.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.