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One takeaway from this year's Black Friday and Cyber Monday shopping extravaganza is that there will be a lot more sweaters and coats under the tree this year.
Shoppers are turning up at stores such as Lululemon, Abercrombie & Fitch, Old Navy and Urban Outfitters this holiday season to buy clothing for themselves and for others. It's a stark contrast from the years that followed the Great Recession, when cash-strapped consumers stuck to their budgets and bought only necessities. For many people, for many years, that meant less clothing. But now, the apparel industry seems to be bouncing back.
"What I saw [during Thanksgiving weekend] was a healthy environment, with lots of consumers walking through the mall with bags and energy," Abercrombie & Fitch CEO Fran Horowitz told CNBC late last month, after the company reported strong earnings. "For us, when we get that product right ... we have a strong response to that."
She said outerwear sales are trending higher so far during the fourth quarter, thanks to cooler temperatures finally hitting much of the country, in addition to "soft and cozy" items like sherpa hoodies and pajama sets flying off shelves.
According to Planalytics, November 2018 kicked off with cooler year-over-year temperatures for most of the inside of the country, and as the month went on, snow and ice started to hit the Plains and the East Coast.
Spending on apparel was up 5.4 percent over Black Friday weekend, the best growth since 2011, according to consulting firm Customer Growth Partners. Typically, the category only pulls in growth of 1 to 2 percent, CGP President Craig Johnson said.
Overall holiday sales, meanwhile, are forecast by the National Retail Federation to climb between 4.3 and 4.8 percent this year, with apparel retailers making nearly a quarter of their annual sales during the holidays. In 2017, clothing stores made 22.1 percent of their annual sales during this period, up from 21.9 percent a year earlier.
"There have been a couple of drivers," Johnson said to explain the growth over the Thanksgiving weekend. "One is: There have been some retailers that continuously outperform, and the biggest outperformers in apparel by far are the off-pricers. They are still growing very rapidly."
TJ Maxx owner TJX, for example, reported sales at its stores open for at least 12 months were up 7 percent in the latest quarter, with net sales up 12 percent from a year ago to reach $9.8 billion. Shares of TJX have rallied more than 25 percent this year compared with the S&P 500 Retail ETF, which is up just 3.5 percent.
The second trend fueling apparel sales gains, according to Johnson, is strength in activewear, with names such as Nike, Adidas and Under Armour making a bigger push into clothing of late. They're hoping to find growth beyond their sneaker sales. These companies are making efforts to get more women customers, in particular, rivaling Lululemon and Gap's Athleta brand. Nike, for example, has said it will open up "studios" that sell yoga pants in some of its stores.
Johnson said performance wear is the fastest-growing category within apparel right now, as women are getting more comfortable with wearing items such as leggings, graphic tees and jogger pants outside the house more often. Brands like Bandier, Outdoor Voices and Fila are taking over Instagram feeds, and their puffer jackets and sports bras are on many women's holiday wish lists, if they aren't already in their closets.
"For a long time in women's fashion, in general, there has been no single dominant trend that all sorts of women are adopting," Johnson explained. "Now we have a theme," which is a more relaxed look.
A third boost to the category is the fact that apparel prices have fallen about 1 percent year over year thanks to many retailers working toward lowering their sourcing costs, Johnson said. That's coupled with shoppers looking for more casual clothing, which tends to be less expensive, than they have in the past.
Amazon, meanwhile, continues to build out its apparel business and is growing the amount of activewear and basics it offers. The e-commerce company recently had more than 1 million women's and men's clothing products listed on its site, according to Coresight Research, up more than 25 percent from February. Coresight found that basics brands like Gildan and Calvin Klein, along with Under Armour and Adidas, are becoming more popular on Amazon.
A separate report by eMarketer is calling for online apparel and accessories sales to jump 14.5 percent to reach $103.66 billion this year, making up nearly 20 percent of total retail e-commerce sales. Last year, 21 percent of annual apparel sales came from the web, with 76 percent rung up at bricks-and-mortar stores.
To be sure, not every company that sells apparel right now should be declared a winner.
Some retailers are still struggling to find the right balance between supply and demand, so that they don't end up with too much inventory on the shelves or in stock rooms. When merchandise piles too high, retailers are forced to use steep discounts to deplete inventory and make room for next season's goods. This has been an issue for some apparel brands, like Gap and J Crew, in the past.
For many apparel retailers, "the lost years of promotional warfare" were from 2009 to 2015, Nomura Instinet analyst Simeon Siegel said. "2016 was a collective effort by retailers to bring inventories down. 2017 was the beneficiary of that. ... That's when retail started coming back to life."
However, Siegel said he noticed during the third quarter department stores as a group reported their first quarter of inventory growth after 10 quarters of declines. Some of that can be attributed to the fact that these companies purchased more items ahead of anticipated Chinese tariffs going into effect. But there's also blame being cast for poor planning.
"This building inventory keeps us extremely wary of go-forward pricing power," Siegel said. Department stores in particular have managed to pass on excess apparel inventory to off-price chains such as TJ Maxx and Ross Stores more easily in the past, he added, but it's becoming harder for them to do this. "You can only hide the product for so long."
Off-price retailers' inventories (grey) vs. department stores (red)
Siegel said he fears apparel could be getting more promotional in 2019. That's good news for shoppers looking for deals but only means more pressure on retailers' margins, as companies already have online investments, store remodels and other costs eating into profits.
That said, there was good news for apparel retailers over the weekend: President Donald Trump and Chinese President Xi Jinping came to an agreement to delay increasing tariffs in early 2019 on many consumer goods, including clothing.
Macy's CEO Jeff Gennette said last month the company was working "aggressively" with suppliers, anticipating the next tranche of tariffs, which included a lot of cotton-based products. A new trade truce with China would benefit a number of retailers, Wells Fargo analyst Ike Boruchow said Monday in a research note, including Fossil, Stitch Fix, Skechers and Steve Madden.
"We'd highlight the off-pricers (Burlington, Ross Stores, TJ Maxx) and Ulta as names that investors have favored of late due to their relative tariff-insulation, but now that the tariff overhang has been temporarily lifted, investors may begin to look elsewhere in our group, " Boruchow said.