Retailer Case

INTRODUCTION

Several general observations can be offered regarding apparel shoppers :

* High - income shoppers and younger shoppers underlie recent sales growth.

* Spending changes are more likely to be driven by needs not wants. Although important, the advent of new fashion "looks" is not the main reason shoppers increase - or decrease - their spending. Instead, changes are far more likely to be related to very practical reasons (e.g., a change in size, replacement of worn clothing, lower household incomes, more savings / debt reduction).

* Also important in prompting changes in clothing spending is te need to upgrade / update a work wardrobe or respond to a changed work situation.

* As own - market shoppers feel the need to pinch their pennies for apparel, they spend more of their budget at Wal-Mart. Among these shoppers, Wal- Mart is over whelmingly seen as offering the best clothing value, while its clothing styles are a good match for their basic style preferences.

* Clothing specialty stores and traditional department stores benefit from consistent or increased spending among up - market shoppers. The brands and styles offered at these retail formats are most preferred by up - market shoppers.

* Much of the spending increases among younger shoppers are funneled to fashion - focused clothing specialty stores, as well as retailers offering credible fashions plus a strong price for the quality value.

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* Department stores and clothing specialty stores are the top two choices for offering the most - wanted brands and the most - wanted styles, both overall and among key segments.

* The majority of Americans wear ordinary/basic styles at work and at play. However, they seem a bit more stylish on the job than off. Younger and higher-income shoppers skew toward more fashion - driven looks for both wearing occasions.

Who Is driving Apparel Shopping Growth ?

Apparel sales grew 6 percent form 2003 to 2004, following 1.4 percent growth the prior year. We project apparel spending to increase about 4 percent annually during the next several years. Margins, however, will be severely tested by accelerating price pressure. The 2004 sales increase can be explained by our ShopperScapeTM data, particularly when viewed through the "liens" of household income. Every month, we survey 4,000 shoppers about their recent and planned spending. We collect purchasing data for over 150 retailers and more than 100 product categories.

The majority of Shopper Scape TM respondents say they spent about the same amount on clothes for themselves in 2004 compared with 2003. Twice as many reported reduced spending than reported increased spending. These proportions, however, drainatically varied by upper-versus lower income households and resulted in a net increase in overall spending.

Consumers with the highest incomes were the most likely to increase their spending for themselves, while those with lower incomes were the most likely to reduce spending. According to U.S. personal consumption expenditure date, the highest- income shoppers account for one-quarter of all apparel spending, although they make up only 12 percent of all households. The lowest-income households account for over one-third of all households but only 18 percent of all apparel spending.

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With respect to race / ethnicity, Whites were the most likely to maintain their clothing spending for themselves, compared with African-Americans and Hispanics. Latines, more of whom reported reduced spending. Spending trends on clothing also varied notably by both gender and age. Changes in spending - both increases and reductions - were more pronounced among women and younger shoppers than among their counterparts. Men and mid - life to older shoppers were most likely to have an unchanged rate of spending on clothing for themselves. Women were more likely to have both increased or decreased spending compared with men. Working-age shoppers (ages 18 to 54) were more likely than older shoppers to have increased their spending on clothing for themselves.

What Underlies Spending Changes ?

Spending Increases

Spending increases were most likely to be related to very practical reasons (e.g.a change in clothing size, replacement of worn clothing). Spending decreases were most likely to reflect a shrinking wallet. Work wardcobes also were important to spending changes, whether related to updating the wardrobe or a change in work status.

Among those spending more on clothing, the most commonly cited reasons were related to practical needs for new or replacement clothing rather than to having more discretionary income available to spend on clothing or having a desire for a new fashion look. The need for a new size was mentioned as the most important reason for spending more on clothing by 28 percent of respondents. The replacement of worn - our items was mentioned by 21 percent. Eighteen percent increased spending to upgrade the work wardrobe. Few shoppers (3 percent) increased spending because fashions were of greater interest than previously. A

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slightly larger percentage (9 percent) attributed the increase in spending to higher income.

Specific reasons for increasing clothing spending were highly related to age but not as much to gender. The only significant gender differences were that women were more likely than men to increase spending on clothing due to a change in size, while men were more likely in increase spending because of the need to replace a worn or torn item. Shoppers in older age groups were more likely to spend more because they were replacing worn - out clothing. Those in their mid-life "work" years were more likely to spend more because they were updating their work wardrobe. Less debts, higher incomes, and more time to shop were more likely to be reasons cited by younger shoppers for higher spending.

Reasons behind increased spending were not well explained by either income or race. The most notable differences by income were among shoppers with household incomes of $25,000 to $49,999 and $75,000 to $99,999. Both groups were more likely than others to spend more to upgrade the work wardrobe. Those with incomes from $25,000 to $49,000 also were more likely than others to spend because they had more income and more free time to shop.

Spending Decreases