E-retailer competition is intensifying
Consumer demand for activewear is increasing, and competition among apparel retailers has intensified, with many e-retailers stepping into the game. These e-retailers include Amazon (AMZN), the world’s largest web retailer.
According to NPD Group, online apparel sales made up 17% of the total dollar value sales in the 12 months through February 2015. Online apparel sales grew 19% YoY (year-over-year). That’s faster than the growth rate of overall US e-commerce sales, which rose 14.6% YoY in 2015 and 15.4% YoY in 2014.
A steady decline in mall traffic has been a strong factor that has affected sales at brick-and-mortar stores. The decline was spurred by higher online shopping. Online offers tend to be more competitive since e-retailers save on the fixed costs necessary to operate physical locations.
Benefits of private labels
Amazon (AMZN), which already offers a plethora of apparel brands, recently stepped into the private-label apparel business by launching its own labels. While the world’s largest e-commerce player hasn’t confirmed the launch, Internet Retailer has identified seven Amazon clothing brands that cater to men, women, and children.
Given the popularity of activewear, Amazon’s launch of products in the category or a tie-up with an existing player may not be far off. Private-label brands tend to earn higher margins, which should benefit Amazon’s bottom line and profitability.
Digital sales of activewear companies
Activewear companies such as Nike (NKE), Lululemon Athletica (LULU), and Under Armour (UA) are also seeing faster growth in digital sales compared to their brick-and-mortar channels. This is due in part to the online interactive and social features offered by these companies.
Target (TGT) and Walmart (WMT) are also seeing higher visits and conversion rates online compared to its stores. In contrast to some department stores, apparel sales at Walmart have increased in the last few years. Target is also focused on its apparel category. The company posted upbeat results last fiscal year and is looking to launch new lines, both private-label and exclusives, in the near future.
Due to the price comparison advantage offered in the online channel, the increasing trend in web shopping could benefit larger players such as Amazon. However, due to the distribution and innovation advantage of individual brands, companies are likely to be able to control the flow of merchandise through these channels.
NKE, AMZN, UA, WMT, and TGT together constitute ~2.7% of the portfolio holdings of the iShares Core S&P 500 ETF (IVV).
In the final part of our series, we’ll see why activewear retailers are in expansion mode.