GMS apparel sales shrink further but signs of revival

Sep 15

GMS share of the apparel market shrank last year, with sales down yet again. There is some glimmer of hope as the top chains expand private brand ranges, design better apparel floors, and in many cases, hand over space to specialty tenants, with some even making a profit.

General Merchandise Store (GMS) chains continue to see significant declines in apparel sales. For 20 years the format has watched as its share of the apparel market has more than halved, but until recently had yet to come up with any significant response to specialty chains. Last year again only two GMS chains saw sales increase and only one by more than 1%. Gross margins continue to fall, reflecting inefficient supply chains (dependence on wholesale suppliers) and the impact of price competition from specialty stores and online. The only major chain not included in the survey is Walmart Seiyu which may well have seen sales increase thanks to the popularity of its imported lines.

Other than Seiyu, the top four, Aeon Retail, Ito-Yokado, Uny and Daiei, were all down. For all four, total sales fell more than like for like because of contracting space for apparel or conversion to specialty chain tenancies. Most mid-sized chains also fared worse for similar reasons.

Ito-Yokado achieved slightly higher gross margins thanks to the success of its new Galloria private brand. Until FY2012, Ito-Yokado had seen its apparel floors lose money for 10 consecutive years, but the category actually made a profit in FY2013. Izumi posted a 0.4% increase in sales, only one of two companies to do so, thanks to store expansion as well as strong summer sales last year, but this did not follow through to the winter. San-A, the smaller, Okinawa based chain, had the best result by far, up 3.3% thanks to new stores. Izumiya raised prices, helping lift gross margins, but even though footfall increased last year by around 2%, per customer apparel sales fell due to the higher prices.

Amidst these ongoing bleak results, there remains some measure of optimism for GMS apparel thanks to the promise of private brands and the shift to more tenancies – while the latter do not increase apparel sales, they usually mean higher income and gross margins.

Other than Seiyu, Aeon is the most proactive in this regard. Its TopValu brand is popular and improving thanks to help from Mitsubishi Shoji, and it has added both higher end and low price ranges within the TopValu collection under the TopValu Select and TopValu Best Price labels. Aeon Retail has also recently expanded dedicated higher end lines of private brand apparel. At the top end, Espritmur is available in around 80 Aeon stores and targets 30-50 year old women. It is also sold online (www.espritmur.com). Espritmur machine washable jackets sell for ¥9,990, about 20-30% higher than other Aeon private brand ranges.

Earlier this year, Aeon opened a promising new specialty store of its own. The chain is called F.T, and is billed as a select shop for families, a vast 3,500 sqm space complete with cafe, nail bar, and kid’s corner for reading and playing while parents shop. There are 90 brands on sale, 40 for women, 28 for men, 14 for children and eight homeware brands, with an emphasis on a more premium positioning to complement the basic apparel sections within the GMS itself.

Aeon has also recently signed five Japanese fashion designers to help reboot its apparel lines, and in particular create new brands for younger customers. Taking a leaf from Uniqlo’s book, it is currently looking to recruit designers from Europe to help develop apparel lines that will sell well in Japan, as well as its expanding store presence in other Asian markets.

As part of its efforts to improve the fashion credentials of its apparel divisions, Aeon recently teamed up with fashion magazine Glow to market its Persodea brand of womenswear, which has 370 corners in Aeon stores, targeting women in their 30s and 40s. Glow will sell 16 SKUs from the brand through the magazine and website. This is the third collaboration between Takarajimasha (the publisher of Glow) and Aeon; in August, Aeon promoted its Esseme brand with Takarajimasha’s fashion title, Osharetecho, which targets women in their 50s, as well as its Self+Service brand through lifestyle magazine Liniere.

Ito-Yokado too has upped the quality of its own apparel and begun to build more appealing shop floors that also include some specialty tenants, often from within the Seven & I group. From this Autumn Ito-Yokado is doubling the number of stores carrying its higher end apparel private brand Galloria Prestige to around 50 stores. Galloria Prestige uses Japanese fabrics and Italian yarns and is entirely made in Japan. Blouses sell for ¥6,480-8,640, about double the price of other private brands in the chain. For S/S, the Galloria brand offered around 120 SKUs, but Ito-Yokado plans to expand this range to some 720 SKUs for this A/W.

Uny is expanding private brands with the help of Itochu Shoji, while also adding more specialty tenants. It will raise own branded apparel from 52% of apparel sales to 56% this year, and will also increase the space turned over to specialty tenants. Daiei is selling more Aeon merchandise and its remaining apparel floors will be refurbished under Aeon’s guidance over the next three years.

GMS chains are being given a helping hand by apparel groups too. World launched its Shoo La Rue chain specifically for franchising by GMS last year, and Cross Plus, one of the leading suppliers of apparel to GMS, has also begun development of complete retail concepts. Seven & I is also moving Seibu into Ito-Yokado, opening 150-200 sqm Seibu-branded concessions in stores such as Ito-Yokado Yamatotsuruma. Seven & I is also working with World on a GMS only brand called EspadrilleSW. It is also introducing more of its specialty chains into Ito-Yokado and other GMS chains are doing the same; Seiyu signed Shimamura to take space at its Ofuna store in June for example – the apparel chain has taken over the second floor of numerous supermarkets around the country too.

Rising prices at Uniqlo and other majors chains

Fast Retailing has raised Uniqlo prices by 5% for this Autumn, the first time in its history it has increased prices across the board. It says it has been forced by rising prices of raw materials, labour costs at Chinese factories and the low value of the Yen. While the apparel giant has made progress in reducing dependence on Chinese production by shifting to lower cost centres like Myanmar and Bangladesh, the bulk of production is still in China and the double hit of higher raw material prices and a low Yen have forced the issue.

While its stock price took a hit after the announcement, luckily for Fast Retailing other major retailers face the same pressures and are also raising prices for the same reasons, notably Muji by 4%, and Shimamura with varying increases depending on product line. Muji is also increasing prices of higher end items like its cashmere and alpaca sweaters by 8%. As noted above GMS chains are also introducing higher priced apparel lines while also maintaining basic ranges.

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